Skip to main content

Full text of "The Money Question: The Wealth and Resources of the United States, and why the People Do Not ..."

See other formats


This is a digital copy of a book lhal w;ls preserved for general ions on library shelves before il was carefully scanned by Google as pari of a project 

to make the world's books discoverable online. 

Il has survived long enough for the copyright to expire and the book to enter the public domain. A public domain book is one thai was never subject 

to copy right or whose legal copyright term has expired. Whether a book is in the public domain may vary country to country. Public domain books 

are our gateways to the past, representing a wealth of history, culture and knowledge that's often dillicull lo discover. 

Marks, notations and other marginalia present in the original volume will appear in this file - a reminder of this book's long journey from the 

publisher lo a library and linally lo you. 

Usage guidelines 

Google is proud lo partner with libraries lo digili/e public domain materials and make them widely accessible. Public domain books belong to the 
public and we are merely their custodians. Nevertheless, this work is expensive, so in order lo keep providing this resource, we have taken steps to 
prevent abuse by commercial panics, including placing Icchnical restrictions on automated querying. 
We also ask that you: 

+ Make n on -commercial use of the files We designed Google Book Search for use by individuals, and we request thai you use these files for 
personal, non -commercial purposes. 

+ Refrain from automated querying Do not send automated queries of any sort lo Google's system: If you are conducting research on machine 
translation, optical character recognition or other areas where access to a large amount of text is helpful, please contact us. We encourage the 
use of public domain materials for these purposes and may be able to help. 

+ Maintain attribution The Google "watermark" you see on each lile is essential for informing people about this project and helping them find 
additional materials through Google Book Search. Please do not remove it. 

+ Keep it legal Whatever your use. remember that you are responsible for ensuring that what you are doing is legal. Do not assume that just 
because we believe a book is in the public domain for users in the United States, that the work is also in the public domain for users in other 

countries. Whether a book is slill in copyright varies from country lo country, and we can'l offer guidance on whether any specific use of 
any specific book is allowed. Please do not assume that a book's appearance in Google Book Search means it can be used in any manner 
anywhere in the world. Copyright infringement liability can be quite severe. 

About Google Book Search 

Google's mission is to organize the world's information and to make it universally accessible and useful. Google Book Search helps readers 
discover the world's books while helping authors and publishers reach new audiences. You can search through I lie lull lexl of 1 1 us book on I lie web 
al |_-.:. :.-.-:: / / books . qooqle . com/| 

5»n 4616.75,47 

Tllllili EDI1 

Money Question 

WF1Y tbl ■ 


ID i" :■ Fi I Nl TiONS. 

, , ,.,, ,-.,.■ 

UP IK ' ■ D ■ ■ '. 


... i CIKttJtl >iBI. 

■ ■ ■ ■ i , ...,,-.,.,■ 

President of Phoenix Furniture Company, 





Money Question 






'.'*..•■•• • ■ ". • " . • ' 









E<.. € >,a^':.*V-4"| 

* . 1 1. 

(&Mi<\J ^{1/ iM ^^ Ji:*S. 

Entered according to Act of Congress, in the year 1876, by 


In the Office of the Librarian of Congress, at Washington, D. C. 

i ■ 

' Ui 


; In appearing before the public in the character of a 
writer, upon what is commonly supposed to be a very 
abstruse subject, a word of explanation seems to be neces- 
sary. For over a quarter of a century I have been aefively 
engaged in business, as a manufacturer, and have naturally 
been led to enquire into the laws which govern the produc- 
tion and distribution of wealth. It was a matter of perplexity 

to me why it was that a nation possessed of the wonderful 

■ , ' ■ - . ■ • ■ ' . ' • . 

natural resources and the enormous productive powers that 

are possessed by the American people, should not enjoy 
general and uninterrupted prosperity; and, knowing that 
wealth is chiefly the product of labor, that the industrial 
classes of society are unable to retain anything like a fair 
proportion of the wealth produced by their labor. The 
% farmer, usually considered the most independent of mortals, 
is engaged in a never-ending struggle to secure a mere com- 
petency; the same is true of the mechanic, the laborer, etc.; 
and the merchant, the manufacturer and others engaged in the 
production and distribution of wealth, aided by capital, are 
oppressed with a consciousness that their capital may at any 
time take to itself wings and fly away, no matter how wisely 
or prudently they may conduct their affairs. On the other 
hand, wealth is seen flowing in a constant stream into the 
laps of those who do not employ their capital in any wealth 
producing pursuit, but use it, in the shape of money, as an 
instrument to control property and labor. This certainly is 
sufficient to justify the suspicion that the unequal distribu- 
tion of the products of labor which is constantly going Qti. 
in the land, greatly to the disadvantage oi fcocYetoj^Vk StwaXb 

c_ < v.A'v\S."\l.'4'1 

($JHl U\* Sw \ wx.*v-»^- >-*/** rt.v-/ 


Entered according to Act of Congress, in the year 1876, by 


In the Office of the Librarian of Congress, at Washington, D. 0. 

• i 

t II. 


In appearing before the public in the character of a 
writer, upon what is commonly supposed to be a very 
abstruse subject, a word of explanation seems to be neces- 
sary. For over a quarter of a century I have been actively 
engaged in business, as a manufacturer, and have naturally 
been led to enquire into the laws which govern the produc- 
tion and distribution of wealth. It was a matter of perplexity 
to me why it was that a nation possessed of the wonderful 
natural resources and the enormous productive powers that 
are possessed by the American people, should not enjoy 
general and uninterrupted prosperity; and, knowing that 
wealth is chiefly the product of labor, that the industrial 
classes of society are unable to retain anything like a fair 
proportion of the wealth produced by their labor. The 
% farmer, usually considered the most independent of mortals, 
is engaged in a never-ending struggle to secure a mere com- 
petency; the same is true of the mechanic, the laborer, etc.; 
and the merchant, the manufacturer and others engaged in the 
production and distribution of wealth, aided by capital, are 
oppressed with a consciousness that their capital may at any 
time take to itself wings and fly away, no matter how wisely 
or prudently they may conduct their affairs. On the other 
hand, wealth is seen flowing in a constant stream into the 
laps of those who do not employ their capital in any wealth 
producing pursuit, but use it, in the shape of money, as an 
instrument to control property and labor. This certainly is 
sufficient to justify the suspicion that the unequal distribu- 
tion of the products of labor which is constantly going Q& 
in the l&rid, greatly to the disadvantage of society, is due to 

iy. pebface. 

the manner in which money is instituted; and the questions 
arise, in what respect is money improperly instituted, and 
what is the remedy? 

If it had not been f5r ike experience furnished during the 
Rebellion, the great body of the American people would 
doubtless have continued to struggle on, in entire ignorance 
of the fact that it is possible to establish a monetary system 
on any other principles than those inculcated by the advo- 
catesof the specie basis or bank currency system. Fortu- 
nately, however, it was then fully demonstrated that a system 
of money, such as was suggested by Jefferson and other 
eminent founders of the republic, could be instituted upon 
entirely different principles; a system that would distribute 
the products of labor in entire harmony with the laws of 
trade, and far more equitably than could possibly be done 
through the instrumentality of bank currency. The masses 
undoubtedly realize the truth of this, but are at loss to give 
a reason for the faith that is in them. This is not at all 
strange. The wealth, intelligence and ability of the nation, 
as well as the power of the press, are arrayed on the side of 
the banks, precisely as the same elements were arrayed on 
the side of the United States Bank in the memorable contest 
between that institution and the people, under the patriotic 
leadership of General Jackson. Even professors of political 
•economy are dragooned into the same ignoble service, and 
compelled to distort the principles of the science, to which 
they profess to be devoted, for the purpose of deceiving the 
public. In pursuing my own investigations, I found, to my 
surprise, that, except Kellogg's admirable work, written 
some years before the war, there was no book extant of a 
popular character, from which anything like a clear under- 
standing of the questions involved in the present crisis could 
be obtained; and that the public was entirely dependent 


upon the fugitive writings of the few earnest and able men,, 
Yho have espoused the cause of the people, for information 
upon the subject. It was in view of these circumstances 
that this work was undertaken. I would have been glad r 
indeed, if some one, who was better prepared for the duty, 
had undertaken it; but as that did not seem probable, and, 
knowing the great want of such a work from my own expe- 
rience, I determined that it should be written at all events, 
in order that the American people might have a fair oppor- 
tunity to decide intelligently upon this all important ques- 
tion. No claim is made to originality, nor has there been 
any effort made in regard to style. My sole aim has been to 
present the facts and principles relating to the subject 
correctly, and in plain, simple language; and, as will be 
observed, I have not hesitated to quote extensively whenever 
it could be done to advantage. In preparing the work for 
the press I have also availed myself of competent assistance, 
in order that the subject matter might be presented to the 
public as forcibly as possible. Special care has been taken 
to give credit to those whose ideas or language have been 
adopted, but I am much indebted to the fugitive writings 
above ref erred to, and I desire in a general way to express 
my acknowledgments for the same, and especially to Hon. W. 

D. Kelley, General Wm. Brindle, Henry Carey Baird and 

E. M. Davis, of Philadelphia; Peter Cooper and Pliny Free- 
man, of New York City; John G. Drew, of New Jersey; 
and to the Cincinnati Enquirer, the Chicago Industrial Age 
and the Indianapolis Sun. 


Gband Rapids, Mich., i 
May 20th, 1876. J 



1 . ♦ • ■» 

i • • I ■ i < 1 ! 

f ■•••.,! . ••• ■ i 

,\ " 

U'j • 

/.-.■ • /-• 

. / 

>■:. -.I: ; 

. >1" 

• ..* •.' ... 

i ). . 

i • i 


' * i 

. 1 




CHAPTER I. — The Wealth and Resources op the 
United States. — Why the American People do 
not Enjoy General Prosperity. 9 

CHAPTER H.— Money and its Functions. 25 

The Nature of Money , 26 

The Intrinsic Value of Money. . 30 

The Uses of Money , 37 

Systems of Money , n r 48 

The Power to Make Money a Governmental Function. . 53 
How Paper Money issued by the Government Repre- 
sents Value. , 70 

CHAPTER HI.— Banks and Banking. 15 

CHAPTER IV.— Banks op the Old World. 80 

The Bank of Venice.. . •, » ...'.' 80 

The Bank of Genoa.. - „ <.. 87 

The Bank of Amsterdam. .. 87 

The Bank of Hamburg ,..*......« 88 

The Bank of England V • ♦ . 88 

The Banks of Scotland.. : 97 

The French System of Finance .- 10Q 

CHAPTER V.— Paper Money and Banks op the; 
United States. 109 

Early Colonial Currency ,-...,. 109 

Continental Money. ....'. 112 

State Banks of Issue.. .. . . . . ; 117 

The First Bank of the United States.. . 119 

The Money Panic of 1809.. : . . . 124 

The Money Panic of 1814.. : . . . 12$ 

The Second Bank of the United States * 126 

The Money Panic of 1819.. 127 

The Money Panic of 1825.. 188 

The War with the United States Bank 183 

The Money Panic of 1837-1839-1841 : 150 

The Money Panic of 1857 153 

The Suspension of 1861 154 

State Banks of Issue Supplanted by National Banks.. . 158 


CHAPTER VL— HlsTtfEV oP lib "Papeb Money 
'"■'Issued Durinq the, Rebellion. 101 

The tif'at Loan Acts..' '. ; . .... . ....... ',', 164 

Treasury Note bearing interest and not a Legal Tender. 171 
Full Legal Tender Treasury Note, not bearing interest. 172 

Secretary Chase's First Aiymal Report;... ..., , 173 

The First Legal Tender Bill.. . . . . ... .'.' 176 

The Gfeeribaek................. ,.....:. '.' ., 199 

TfcnporaryDepoflita - in the Sdr>Treasury \ 203 

Certificates of" Indebtedness.*. ::::. ::..,.. :\ 208 

The Second'Legal Tender' Act'.'.'.'. ...J;;.' 204 

The Se'oVtoct 'Annual Report of 'Sec'retaiy Cha#U'l'.". . . 204 
The Third Legal Tender Act^-t 900,6 00,000 Loan Act 206 
The National liank ■ BUI. ■..'.'...'..'.......'..'..':!..'.:. : 209 

Public Debt Statement, 1863.. 210 

Amount ami Kind of Paper Circulation, June 30, 1864.. 215 

Bonds Exempted from Taxation.. , 216 

Greent&ckVtimited to i40b,ft00,0tl0. . . . : . ....". . . . 216 

Fessenden Appointed Secretary- of -the Treasury'. . ,-v..'i 216 
HeCalloch Appointed -Secretary of -the TvMntrjr.'. ,. . . . 217 

Debt-and Circulation of the. United States, ■ 1 865. ." 'i 219 

McCulloch's Contraction Polioy.-.- .".■.. ..... ..... * 219 

Amount- Contracted, Jitly,- 1868.. ....;,.. \ .■. 222 

Act of- Congress Suspending Contraction 'of -Greenbacks 228 
*d Act to Strengthen the -Public i Credit. ...:.. -./.". 224 

Refunding the Public Debt 230 

PubBo' D8bt Statement, No , veBcAer/187SJ.-.. /. .i.'.t i . . 281 

CHAPTER TIL— The National' Baneinc^ System. 244 
Secretary Chaw lit'commends a National BaptopgiLaw. 244 

National Bank Bill Reported in the Senate....... 246 

Tlh.e National Banking Law.. ......„.,.-,... ...<.j. .... .; 246 

Of the Organization oi National Banks.. . .....'...,,,. 247 

The Profits of National Banks ,...;,.,.:,' 250 

The Panic of 1873 ...,......,.,.. 251 

The Cost of Bank Currency .,..,.......;,.. 263 the Country since ISfiG ;.,.....: .. 264 

Extravagance 1 — Ovci 1 Production.. ....,......; 266 

An Act to Resume Specie Payments and Make Bank- . 

; ing Free to Bondholders 270 

TV Little Tariff Bill— an Act to Enable the National - 
Hanks to JUououolize the Currency 271 


CHAPTER V1LL — Resumption of Specie Payments. 273 

How Interest on Government Bonds is Paid 274 

The Specie Resumption Act 279 

The Amount of Gold in the Country 281 

Resumption Impossible 282 

The Consequences of Forced Resumption 289 

The Experience of Great Britain in 1819—1823 290 

The Consequences of Forced Resumption in the United 

States 300 

CHAPTER IX. — A Monetary System Founded 
upon Sound Principles. 305 

The Real Issue in the Impending Crisis 311 

An Analysis of the Specie- Basie or Bank Currency Sys- 
tem of Money , * . . * . .. .312 

TPne Cpjrt'6£ tie Credit System. . I . „ .324 

Comaifcrcial Crashes and Money Panics.. .326 

An An?ilygis of the Legal Tender Paper Money System, 330 

What is a Dollar?. *,:, ; , 333 

Money of Account. ... r ... . ., , . . .334 

The Legal Tender Question 341 

Hbw Mttcn Money a Nation Snould Have. 34$ 

How Interest Should be Regulated 349 

The 3.65 Bond Plan.. 352 

How the Public Note is Put in Circulation 355 

The National Debt 356 

Conclusion 359 


Horace Greeley's Famous Editorial on the 3.65 Bond 
Plan 363 

The Legal Tender Bill as it passed the House of Rep- 
resentatives, Feb. 6, 1862 367 

The Legal Tender Act of February 25, 1862 370 

Speech of the Hon. Thaddeus Stevens in the House of 
Representatives, December 19, 1862 373 

Table Showing the Monthly Range of the Gold Pre- 
mium since 1862 381 

The French Assignats 382 


, !. 




The table Riven on page 331 exhibiting the amount and character of the pnblle- 
debt, bearing interest, on the 80th day of November, 1875, is incomplete. By an 
over^tght the currency bonds issued to the Pacific Railroads were -omitted. The 
amount of the currency bonds outstanding at that date was 804,623,512^ which, 
added to the amount given on page 231, would make the total public debt, bearing, 
Interest, vNovember 30, 1875,11*758,874,812. 

On page 88 for " out,*' the last word on the page, read " about." 

On page 17, In the seventh line from the bottom of the page, substitute V April* 1 
Ibr" March." ' 





The prosperity of a people depends chiefly on the use 
which they are enabled to make of their natural resources. 
It frequently happens that nations possessing great natural 
advantages fail, through want of properly directed industry 
or defective laws, to attain even a reasonable degree of 
prosperity; and, on the other hand, that nations possessing 
but limited resources succeed^under wise laws and by means 
of well directed energy, in achieving great wealth. History 
abounds in instances illustrating the truth of this statement. 
At the present time Ireland and Holland may be cited as 
cases in point. Ireland possesses a fertile soil, salubrious 
climate, fine harbors, noble rivers, and a population naturally 
brave, quick and capable of great labor; but her people, by 
reason of unequal laws and bad government, are chained 
to poverty and ignorance. Holland, a land reclaimed from 
the ocean and held only by sleepless vigilance, was orig- 
inally destitute of even ordinaiy advantages; but under 
enlightened laws, industry and art have accomplished the 
most marvelous results. " Below the level of the sea, and 
the surface of adjacent rivers and canals, have be4h created 


by human art, fat pastures teeming with flocks and herds, 
rich artificial garden land, nourishing the industrious and 
thriving population of innumerable cities, towns and villages. 

The very coast is an artificial fortification against the ocean, 

... - • ■« • ... ■-"* "t - • 

the ancient and natural -monarch 6f the eoucfcry. Here he 
is defied by leagues of artificial sea banks — there by miles of 
granite masonry. Rivers and canals are made to run many 
feet above the level of the country. Armies of indefatigable 
wind mills are perpetually pumping and draining. Amster- 
dam and Rotterdam, populous, opulent and splendid cities, 
rest on piles driven into the mud." Thus, by well directed 
industry, under wise laws, have the people of Holland been 
enabled to achieve a wonderful victory over the forces of 
nature, and to clothe themselves with general prosperity. 

Tne people of the United States are peculiarly rich in all 
the bounties of nature. They possess a land whose area 
exceeds 4,000,000 of square miles. Within its boundaries 
are. embraced every variety of soil and climate; inexhaustible 
mines of iron, coal, copper, lead, zinc, gold and silver; im- 
mense forests; grand lakes and mighty rivers. A better 
idea of its great extent may be formed by comparing some 
of the States of the Union with the kingdoms of Europe. 
California, for example, is equal in size to England, Scotland, 
Ireland, Wales, Belgium, Holland and Portugal; and Texas 
is equal to France, Holland, Belgium and Denmark. The 
mineral resources of the country are almost beyond compu- 
tation. For example, it is estimated that coal enough has 
already been discovered to supply a population of 1^000,000,- 
000 for 60,000 years. Other minerals, comparatively speak- 
ing, are equally abundant The gold producing region of 
the country covers ah area of over 1,000,000 of square miles, 
ttior to the discovery of gold in California in 1849, the 
g-oJ<3 yield of the world did not exceed $20,000,000 a year. 


Uow the United States alone produce annually over 
$75,000,000 worth of bullion. 

*The agricultural resources of the country are equally 
1)oundTegs. In almost every section the soil yields bounti- 
fully,'while in some regions, as in the great States of the 
West, its fertility is unsurpassed. The agricultural produc- 
tions of that region alone have reached an almost fabulous 

The gireat natural advantages possessed by the country 
haVfe enabled itfe manufacturing interests to make great 
progress, in spite of the ever changing and illy devised tariff 
laws, wh^cjp^, for the greater part of the time, have disfigured 
the statute books of the nation. While agriculture and 
manufactures flourish side by side, in all parts of the country, 
greatly to the advantage of both, it happens that the peculiar 
facilities- and- advantages enjoyed by different sections of 
the country' have caused their industries to vary 1 greatly in 
character. , Thus, the people of the Eastern States are 
devoted chiefly to manufactures and. commerce; the people 
of the Middle States-, although engaged largely in com- 
meree, manufactures and agriculture; are also occupied 
extensively in dealing in iron, coal, lumber, salt, petroleum, 
etc."; the* people of the Western and South Western States, 
while possessed 'of large mineral aiid other interests, as yet 
find their chief profits in the vast agricultural resources 
Vhich they enjoy; the pe6ple of the Southern States are 
engaged principally in the production of the valuable staples 
common to that section, such as cotton, rice, sugar, tobacco, 
etc.; and the people . of . the Pacific States, besides their 
immense agricultural and commercial interests, find a wide 
field for employment in developing the rich mines of gold, 
Silver, etc., which have rendered that region famous 
"fliroughotit the -world. 


To glance briefly at a few details, the assessed value of 
the farms and stock in the United States in 1870 was nearly 
$11,000,000,000, and this sum did not cover one-half their 
actual value. The following statement, gathered from the 
Census Report of 1870, gives a partial view of the agricul- 
tural operations of the country during the preceding year: 

Farm products, including additions to stock. $2,500,000,000 

Farm wages, including value of board 310,000,000 

Wheat 288,000,000 bushels* 

Rye 17,000,000 " 

Indian Corn '. 761,000,000 " 

Oats 282,000,000 " 

Barley 30,000,000 " 

Buckwheat 10,000,000 " 

Flax Seed 1,700,000 " 

CloverSeed 600,000 " 

Grass " '. 600,000 , " 

Potatoes 144,000,000 u 

" Sweet 21,000,000 " 

Peas and Beans 5,500,000 " 

Cotton 1,200,000,000 pounds. 

Flax 27,000,000 " 

Hemp * 25,000,000 " 

Hops 25,000,000 ? 

Rice 74,000,000 " 

Wool 100,000,000 " 

Tobacco 263,000,000 " 

Butter 600,000^000 " 

Cheese 23,000,000 " 

Say 27,000,000 tons. 

And the following statement presents a general view ,o£ 
the manufacturing interests of the country in 1870: 

Number of manufacturing establishments... 252,148 

Number of operatives. : 2,053,997 

Capital invested w .' $2,118,000,000 

Annual salaries paid 776,000,000 

Raw material used. 2,488,000,000 

Products 4,232,000,000 




In considering the resources and advantages of the coun- 
try, it is proper to notice the labor saving machinery,largely 
the result of American ingenuity, which now performs such 
an important part in all the departments of labor. In Great 
Britain the power of the machinery of that country is esti- 
mated as equal to that of 600,00d,00tf of men. In this 
country it probably does not reach that amount, but it is 
sufficiently large to add enormously to the productions of 
the country. In many sections one thousand acres of land 
can now be cultivated with no more cost than was formerly 
required to cultivate one hundred. 

The great and varied industries of the country are rendered 
vastly more useful and profitable by reason of the channels 
of communication, natural and artificial, which extend in 
every possible direction. In addition to the many lakes and 
rivers, which traverse the country, it is covered with a net- 
work of railroads from ocean to ocean, affording ample 
means of transportation to gather and distribute the products 
of the nation. 

From this outline of the wealth and resources of the 
United States, it is apparent that the American people are 
possessed of vast advantages, such as are hardly possessed 
by any other nation on the globe. It is estimated that the 
United States are capable of sustaining a population of 
upwards of 350,000,000, while the population of the country 
now scarcely exceeds 40,000,000. If enabled by wise laws 
and well directed industry to make a proper use of their 
advantages, the people of the United States ought to enjoy 
general and uninterrupted prosperity. And, as the govern- 
ment oifthe United States is republican in form — based upon 
the theory that all power emanates from the people, the 
responsibility of any failure on their part to attain wealth 
gperity must rest with the people themselves. 



Notwithstanding their boasted industry, intelligence and 
enterprise, and the vast resources which thej^po^sess, the 
people of the United States, as a nation, have failed, utterly 
and disgracefully, to attain anything like a reasonable 
degree of general prosperity. We shall not resort to any 
elaborately prepared statistics to establish the truth of the 
assertion, but will simply call attention to a few important, 
facts, the consideration of which, we believe, cannot fail to 
produce conviction. 

Ten times within the past sixty years has the country 
been visited by commercial crashes and . money panics* 
accompanied or followed by. general stagnation of business, 
ruin and bankruptcy. From 1814 to 1861 the country suf- 
fered nine times in this way, and only once y from 1841 to 
185*7, did it escape a financial crash for a longer periocrtnan 
ten years. At the present time the, country is suffering 
from the crash of 18*73, or rather from the same causes that 
produced that crash. 'These commercial crashes have 
invariably paralyzed all forms of productive industry, bank- 
rupted business men, stripped the debtor class of their 
property, and occasioned want and distress amongst nearly 
all classes of people. When we look back over the past 
half century, we find that, as a matter of fact, the people a£ 
large have never had an opportunity, even between these 
seasons of financial disturbance, to enjoy more than a 
glimpse of prosperity. They have been kept busy, either 
struggling to avoid impending ruin, in view of a commercial 
brash, or laboring to rebuild their shattered fortunes, after 
the panic had subsided. And now, the Centennial year, 
1876, soon to be celebrated with great pomp on the banks of 
the Schuylkill, under the auspices of a great city writhing 
under the heel of a corrupt Ring, finds the people, in the 

r • 

' ■ > . '• 


midst of plenty, distressed, exhausted and poor. And how 
does this happen? Has nature frowned upon the husband- 
man and refused to respond to his toil? Has the earth 
declined to yield up her precious stores? Has the hand of 
the artisan or mechanic lost its cunning, or the arm of the 
laborer its strength? Not at all. The granaries of the 
West are bursting with the products of the soil; the valuable 
staples of the South are as ready as ever to respond to the 

*: , -> .^^iouch of labor; the mineral wealth of the earth lies exposed 
on every hand; the wheels of the workshop and the factory 
are faithful as ever; and the mechanic and laborer are not 
only able and willing, but anxious to work. The cause of 
"the whole trouble lies concealed in the simple word — 

In civilized nations at the present day a circulating medium 
of exchange, called money, is as essential to the production 
and distribution of wealth in all its forms as railroads and 
wagons are to its transportation. In 1873 an epidemic 
among the horses, for a few weeks, seriously interfered With 
trade and travel. Were all the railroads and canals of the 
country to suspend operations for a single season, it is not 
difficult to surmise the amount of disaster and distress that 
would ensue. And the public might as well try to conduct 
the affairs of life without railroads and wagons, or the fai> 
mer try to cultivate the soil without implements, as for a 
\ \ nation to attempt to develop its producing forces, or carry 

_^i— 7 on successfully the operations of trade, without an adequate 

amount of money in the channels of circulation. 

The business affairs of the country during and after the 

late war increased largely. The wealth of the nation, in 

spite of the ravages of war, increased from $16,000,000,000 

in 1S60 to $30,000,000,000 in 1870. All the money and 

evidences of indebtedness of the government, which could 

be used as a circulating medium of exchange, were actively 

employed. The people, for the first time in their history, 



had an abundance of money in circulation and were enabled 
to develop the resources of the country and add to its wealth 
in a corresponding degree. The increased production in 
every department of labor rendered the burdens of -taxation 
light, and, at the same time,- increased the revenues; of the 
government to an enormous extent. .The government, in 
consequence of its largely increased revenue, was enabled, 
at the close of the war, to, begin, the reduction of the public 
debt at a rapid rate. The people, notwithstanding the bur- 
den of taxation which they were compelled to bear, were, 
individually, put of debt. But matters began to change. 
The channels of : trade became stagnant or sluggish, busi- 
ness began to languish, factories and workshops were 
obliged to suspend or reduce labor and wages, real estate 
fell in value, and enforced idleness began to grow common; 
and, as in times prior to the war, the climax was capped by a 
financial panic. The cause of this astonishing change in 
the condition of the country — from activity and prosperity 
to inactivity and distress — will be foun<J in the following 
statement, taken from the books of the 'Treasury Department 
by Hon, Moses W. Field, which exhibits the contraction of 
the circulating medium of the country that took place from 
September 1, 1865, to December 1, 1873: 

Amount of money, currency, and circulating medium, Sep- 
tember 1, 1865, (exclusive of coin:) 

United States Notes. $433,160,569 

IVactional Currency. 26,344,742 

National Bank Notes 185,000,000 

Compound Interest Legal-tender NoteB. ..... 217,024,160 

Temporary Loan Certificates, (10-d-d,) 107,148,713 

Certificates of Indebtedness 85,093,000 

Treasury five per cent, legal tenders. . ...... 32,536,991 

Treasury Notes, past due, legal-tenders, and 

not presented. 1,503,020 

State Bank Notes. ; 78,867,575 

Three year Treasury Notes . . n ;: 830,PQ0,000 

Total Sept. 1, 1865 $1,996,678,770 



Circulating medium, exclusive of coin, December 1, 1873. 

United States Notes $367,001,685 

Fractional Currency 48,000,000 

Certificates of Indebtedness (bearing Interest) 678,000 

National Bank Currency 350,000,000 

Total December 1, 1873 $765,679,685 

Contraction from Sept. 1, 1865, to Dec. 1, 

1873, (causing a money panic) $1,230,999,085 

From the foregoing statement it appears that the circular 
ting medium of the country (or evidences of indebtedness 
of the government used as such) was contracted over 
$1,200,000,000 -in eight years. The greater part of this 
amount consisted of the Three year Treasury Notes ($830,- 
000,000.) These notes were called in and bonds substituted 
in their stead prior tp 1868. The crash of 1873 followed as 
an inevitable consequence. It won't do to say that it was 
the result of the war, or of extravagance, or of over* produc- 
tion, or of anything of the kind. Crashes and money panics 
just like it occurred before the war, on an average, every 
five years, and this crash did not occur until eight years 
after the war. The periodical money panics, which 
occurred before the war, were the natural results of the 
-specie basis system of money; and the panic of 1873 was 
caused by enforcing the policy of contraction, which was 
planned at the same time that the National Banking system 
was projected, in order that the specie basis system might 
be re-established. The act of Congress of March 12, 1866, 
authorizing a contraction of the currency, was adopted on 
theVecommendation of Hugh McCulloch, Secretary of the 
Treasury. It gave him unlimited control over the finances 
of the country, and he did not fail to use the power placed 
in his hands, to the fullest extent, in aiding the money 
power, with which he was in league, to rob the country and 


the people. When McCulloch's infamous betrayal of the 
high trust reposed in him becomes fully understood, his 
name will be used as a by-word and reproach throughout 
the nation. 

Apart from commercial crashes, or money panics, it 
is evident that there is something radically wrong in the 
monetary system of the country — that there is some con- 
stantly operating cause, which tends " to fertilize the rich 
manV field by the sweat of the poor man's brow." The 
masses toil, day after day and year after year, seeking to- 
secure a competency and scarcely succeed in obtaining a- 
subsistence. The better classes may succeed in building up 
homes, but they are never secure in their possession, until 
they have amassed sufficient property to at least enable 
them to outlive a season of financial depression. The profits 
of labor flow in a steady stream into the hands of non- 
producers, who are engaged in manipulating money. It is 
not difficult to discover the reason. Money is essential to the 
development of the producing forces of the country, and 
to the distribution of its products. It is fa* more necessary 
that money should be abundant and cheap, than that there 
should be abundant and cheap means of transportation. 
The contrary, however, has been the general rule since the 
American people have constituted a nation. They unfortu- 
nately inherited the British system of banks of issue, which 
clothes the moneyed classes with unlimited control over the 
circulating medium of a country. Money should be the 
servant and not the master of wealth, and then it will flow 
in the channels of trade, in obedience to the natural law^ of 
supply and demand; but the people have permitted the 
power to furnish the circulating medium of the country to be 
filched from the nation and given over to individuals and 
corporations to be used as a monopoly. At present money 


has ceased to fill the channels of trade, and, refusing to 
perform its offices, has taken refuge in the banks in the 
commercial centers. Statesmen, like Senator Christiancy, 
may tell the people "to go to work in any and every form 
of productive industries," and command it to return, and 
imagine that they are uttering a great deal of wisdom, but 
where are the productive industries? If Senator Christiancy 
had been in Moses's place, the Jews, possibly, would have 
been at no loss how to " make bricks without straw;" but as 
such wisdom is not available in this country, it is to be 
regretted that he did not turn up in Egypt a few thousand 
years ago, instead of in the United States Senate at the 
present time. 

It is of course mere matter of speculation as to what 
would be the condition of the country now if gold and silver 
had been its circulating medium in fact as well as theory, 
or if a legal tender paper money had been adopted at an 
early period, as urged by Franklin, Jefferson, Calhoun and 
others. With nothing but gold and silver the progress of ttoe 
country would undoubtedly have been slow, but the people 
generally would doubtless be better off than they are now. 
With a legal tender paper money, in the light of late expe- 
rience, it is more than probable that the United States would 
to-day be the richest, most powerful and most prosperous 
nation on the globe. Neither system of money, however, 
was adopted. The government allowed the circulating 
medium to be taken out of its hands and erected into a 
gigantic monopoly in the hands of individuals and corpora- 
tions. The gold and silver of the country were locked up 
in bank vaults, as the pretended basis of bank notes, and the 
people were compelled to pay an exorbitant price for a false, 
fluctuating and unsafe currency, subject to the entire control 
of those who issued it. 


Banks of issue have been a fruitful source of disaster, 
both in Great Britain and in the United States. By encour- 
aging discounts and inflating their circulation they greatly 
stimulate business of all kinds. As the process goes on, 
credit becomes inflated to an unlimited extent, until a turning 
point* beyond which inflation cannot go without bursting, is 
reached. Whilst the process of inflating the currency and 
credit of the country is going on, great activity prevails in 
all departments of industry, and everybody seems to be on 
the high road to wealth aind prosperity. But it becomes 
necessary or desirable for the banks to put themselves in 
funds, and they begin to convert their discounted bills into 
money as rapidly as possible. They cease discounting and 
call in their loans. "If by such means they do not actually 
obtain specie, they redeem their notes, which might other- 
wise be presented for redemption in coin. Prices begin to 
fall. Merchants, deprived of their accustomed facility for 
borrowing, and with obligations coming round every day, 
upon which they are liable as principals or endorsers, 
Are anxious to sell, while none of them want to buy. The 
pressure begins in the great marts of foreign trade, and 
-extends from them to the .dealers in the interior. The latter 
.are crowded for payment by their distressed creditors, and 
-crowd their debtors in turn. Property of all kinds depre- 
.ciates and becomes difficult to sell, when every body wants 
to sell, and is anxious to restrict his purchases to the lowest 
practicable amount. Sales, nevertheless, are made upon 
credit, for the purpose of obtaining contracts to deliver 
money at a f uture day, which can be sold to usurers, who 
riot in. their harvest Collections are enforced by suits at 
.law, and effected at the expense of a heavy toll to attorneys 
;and Sheriffs' officers, Out of the proceeds of forced sales. 
Persons whose property is adequate, even at the depreciated 


rates, to the payment of their debts, become bankrupt from 
the failure of their debtors to pay promptly. When the 
doors of a banking house are closed in the afternoon, and a 
merchant's obligation is protested, his credit is gone, and he 
ceases the effort to maintain it by ruinous sacrifices. The 
failure of one increases the embarrassment of his creditors^ 
and repeated failures spread general distrust. As one after 
another goes down, however, there is one less engaged in 
the scramble for money, and the survivors experience the 
same sort of relief as men in a crowd do when some of them 
faint and are carried out."* These financial crises invariably 
involve a general suspension of specie payments. The 
suspension is charged up to the people, who are told that 
they have been "producing too much," or "living too 
extravagantly;" and the banks are enabled to retain their 
reserve of gold and silver, to repeat the operation as soon 
as the Sheriff's services are no longer required, and "confi- 
dence has been restored." . 

The power which such a system confers upon those, to 
whom the right to furnish the circulating medium of the 
country has been delegated, is immense. The price • which 
the people are compelled to pay for their circulating medium 
of exchange is of itself sufficient to rob labor and industry 
of their profits. The wealth of the country increases, as- 
statistics show, a little over three per cent, a year, and with 
money in circulation that costs from 6 to 25 per cent.* it is 
not difficult to see how it is that the wealth of the country 
has a constant tendency to accumulate in the hands of the 
few. The profits of industry are eaten up by interest on the 
circulating medium of exchange— if not entirely, a commer- 
cial crash will take what is left. How seldom do people, 
when handling money, think of the great difference which 

•Political Economy by E. Peshine Smith. 


exists between a United Slates legal tender note (greenback) 
and a National bank bill. The greenback represents the 
property of the people, on which it is a lien, and in the 
performance of its mission of usefulness, as it flies from hand 
to hand, feeding the hungry, clothing the naked, ministering 
to the sick or distressed, or furthering the operations of 
industry and trade, no keen eyed usurer marks its flight; it 
is not burdened with interest. But it is otherwise with the 
National bank bill. Whether serving the purposes of money 
in the channels of trade, or stowed away in the recesses of 
a bank vault, it is perpetually drawing interest. That 
interest, although paid by individuals, is a tax upon the 
community at large. No one can hope to escape his share 
of the tax by "keeping out of bank." General laws in the 
economical world are as universal and constant in their 
effect as the law of gravitation is in the natural world. 

The specie basis system of money has existed in Great 
Britain for nearly two hundred years, and the result of its 
workings there can be seen at a glance. The bulk of the 
wealth and property of the kingdom is held by a small and 
odnstantly decreasing class, whilst the masses are steeped in 
poverty and ignorance. During the wars with France, from 
1/79*7 to 1823, the people of Great Britain had an irredeema- 
ble paper currency. For twenty-five years, notwithstanding 
the drain of a great war, they enjoyed unparalleled prosper- 
ity, by reason of the abundance of money in circulation. 
But the money power demanded a return to specie payments, 
and in 1819 an act of Parliament was passed decreeing a 
return to specie payments in 1823. England possessed 
abundance of gold, had no foreign debt, the balance of trade 
was in her favor, and the difference between gold and paper 
money was only three per cent. Notwithstanding all these 
favorable circumstances, the enforced return to specie pay- 


ments prostrated the industries of the kingdom, ruined the 
farming, manufacturing and business interests, and plunged 
the entire nation into bankruptcy. The masses of Great 
Britain, whose labor and valor had just enabled the British 
government to prosecute to a successful termination one of 
the most gigantic wars of modern times, were hurled by an 
act of Parliament, at the instance of the money power of 
the kingdom, in the most heartless manner and without the 
•slightest grounds of excuse, from a state of prosperity into 
the depths of ruin and poverty. 

At the demands of the same power the people of the 
United States are now being subjected to like treatment. 
With but little gold, scarcely $100,000,000, in the country, 
with the balance of trade against the nation, with a large 
public debt mostly held abroad, and with a difference 
^between gold and paper money of over twelve per cent., 
enforced resumption of specie payments has been decreed 
to take place in 1879. In the light of English experience 
under vastly more favorable circumstances, the people of 
ihe United States can look forward to nothing else but 
continued and increasing prostration of all forms of industry, 
and, when the fatal hour for resumption arrives, a general 
-crash, burying the entire nation in its ruins. 

The people of the United States are a forbearing and long 
.suffering people, but it is scarcely possible that they would 
•continue to submit in silence to the exactions of the money 
power, if they were fully apprised of the nature and extent of 
the robbery to which they have been, and are still, subjected, 
by reason of a false and corrupt monetary system. The 
public debt of the United States in 1865 was $2,682,593,026; 
-on September 1, 1875, it was $2,127,393,8.^6, showing a 
reduction of $555,199,190. Besides this $555,199,190, the 
^people have paid in the past ten yeabs, for interest on the 


public debt, navy, war, civil service, pensions and Indians,, 
$3,324,560,785, or in all the enormous sum of $3,879,759,- 
975, which is one-half more than the original amount of 
the national debt, or a sum greater than the national debt of 
Great Britain. This vast sum has been paid principally by 
the producing classes, for the bondholder and money power 
generally bear no part of the expenses of government. It is 
high time that the burdens of taxation should be more, 
equally distributed. This can be done only by the imposi- 
tion of a graduated income tax, than which nothing caii be? 
more just. 

President Grant suggested in his last annual message that 
the Centennial year would be a fit time to inaugurate reforms. 
We agree with him. Let the people take a lesson from 
experience and reform their monetary system. As it is the 
year for the general elections, something might also be 
done in the way of purifying the administration of public 
affairs. The Centennial year can thus be rendered doubly 
memorable in the annals of the country. 

The celebrated Junius said: "The ruin or prosperity of a; 
State depends so much on the administration of the govern-*, 
ment, that to be acquainted with the merit of a ministry we 
need only observe the condition of the people. , If we see 
them obedient to the laws, prosperous in their industry, 
united at home and respected abroad, we may reasonably 
presume that their affairs are conducted by men of experi- 
ence, ability and virtue. If on the contrary we see a 
universal spirit of distrust and dissatisfaction, a. rapid decay 
of trade, dissensions in all parts of the empire, and a total 
loss of respect in the eyes of foreign powers, we may pro- 
nounce, without hesitation, that the government of that 
country is weak, distracted and corrupt." 



In a state of civilization money performs an important 
part in the production, distribution and accumulation of 
wealth; it is necessary, therefore, that it should be based 
on sound principles. A great deal of nonsense has been, 
written about money and its " hidden power," partly through, 
ignorance and partly through design. So widely have 
political economists differed in regard to its nature and 
functions that it is not surprising that people have been 
willing to ascribe to it some mysterious power, or that they 
should have almost despaired of being able to comprehend 
the principles on which it is founded and by which it& 
movements are governed. And this delusion has been, 
encouraged in eveiy way possible by the moneyed and gov- 
erning classes, who are thus enabled to found systems of 
money on the false theory that money is the master and 
not the servant of labor and property. 

But the age is characterized by a spirit of progress, and 
old systems are rapidly yielding to new ones. The signs of 
the times indicate that the hoary tyranny of the money 
power, which ljas exercised despotic sway for ages over the 
masses of mankind, will, sooner or later, be compelled to. 
succumb to the influences of an enlightened public senti- 
ment. A distinguished English writer,* in commenting on 
the imperfect and rudimentary condition of the science of 
political economy, says: "The steam engine, steam naviga- 
tion, railways, mechanical inventions, the electric telegraph,, 

•Sir John Barnard Byles. 


modern chemistry, have not appeared for nothing. A 
science of political economy will yet dawn that shall perform 
as well as promise — a science that will rain the riches of 
nature into the laps of the starving poor. Men do not yet 
dream of the prosperity which is in store for all orders of 
the people." A large and increasing number of leading 
thinkers, statesmen and philanthropists of the day are calling 
public attention to the unequal and unjust distribution of 
the products of industry that is constantly going on through 
the agency of a false and corrupt monetary system, and 
their views have already made a profound impression on 
the public mind. The ignorant masses of Great Britain 
may be deluded into believing, as is taught by the dismal 
school *>f English political economists, "that it is natural, 
and if natural, proper — though we may not see the reason — 
that poverty and want and disease and misery should be 
next door neighbors of wealth and unbounded prosperity;" 
but the intelligent farmers, mechanics and laborers of the 
"United States are not so easily convinced that the surplus 
wealth, which their labor produces annually, should naturally 
be owned at the end of the year by the financiering and 
non-producing classes of the country. When people find 
themselves being robbed, they are apt to try to discover the 
offender and the means by which it is accomplished. A 
very moderate amount of investigation, we think, will satisfy 
any candid mind that the theory, that the money power is 
the robber, which deprives labor of its just reward, and that 
a corrupt monetary system is the instrumentality, by means 
of which the robbery is perpetrated, is based on sound 


Money, in its ordinary signification, is an agency of trade. 
Civilization has developed a great variety of wants and 


industries, and labor has come to be divided into innumera- 
ble forms, requiring a constant exchange of commodities. 
Individuals are dependent on their fellow men for every- 
thing, except the particular product of their own labor. One 
class furnishes food, another the material for clothing, 
another builds houses, etc., etc., and each class is susceptible 
of innumerable subdivisions. When we come to individ- 
uals, each one has to give his labor, or the product of his 
labor, or the product of the labor of others, for that which 
he needs or desires. This exchange is effected through the 
agency of money. It is necessary, therefore, that money 
should possess a legal representative value. It must possess 
representative value to be the equivalent of the commodity or 
labor for which it is exchanged, and its representative value 
must be established by law, .otherwise its acceptance by a 
creditor would be optional. As the value and power of 
money depend on law, its institution and regulation are 
duties which devolve upon the legislature or governing 
power of a nation. 

The adoption of money or a medium of exchange was 
TOdoubtedly ©ne of the first steps in civilization. In a simple 
state of society, as in newly settled countries now, the 
exchange of commodities took place by means of barter, but 
the necessity of a medium of exchange becoming apparent, 
4ifferent representatives of value were adopted, according to 
the wants, tastes and possessions of the communities or 
nations concerned. Thus the Spartans adopted iron, the 
ancient Romans bars of copper and cattle, the North Ameri- 
can Indian beads, and the East Indian and African shells. 
At an early age gold and silver came to be regarded as the 
most suitable materials for the purposes of money for many 
reasons, among others on account of their possessing large 
value in a small and compact form. Coins or tokens made 


of these metals next appeared, but originally possessed no- 
other power than that which they derived from the intrinsic 
value of the materials of which they were made, which was 
determined by weight, as is the case now, when used in 
commerce between different nations. Governments next 
assumed the right to make and regulate the value of money, 
in consequence of the necessity of establishing a common 
representative of value to be used in the payment of debts 
and taxes. As civilization progressed and wealth increased, 
requiring a more rapid and extensive exchange of commod? 
ities, it became necessary that the medium of exchange 
should be increased in the same proportion. It was imposr 
sible to obtain gold and silver in sufficient quantities to 
answer the purposes of money, and it would seemingly have 
been but the part of wisdom to have adopted new systems of 
money, but history gives but one or two instances where 
anything of the kind was attempted. The scarcity of money 
led to the use of credit, which now plays such an important 
part in the commerce of the world. Bills of exchange were 
invented* it is believed, by the Jews of Lombardy in the 7th 
century. In the 13th, 14th and 15th centuries the greater 
part of the commerce of Europe was accomplished at peri- 
odical markets or fairs. Merchants and traders, or* their 
brokers, would meet at these fairs with their accounts or 
bilans (balance) made out, and by transferring debts and 
credits from one to another, effect a settlement with the use 
of no more money than was required to settle balances. In 
many parts of Europe these fairs are still held, although 
they have lost most of their former importance. Various 
other devices to increase the circulating medium of exchange 
have been resorted to by different nations, such as reducing 
the amount of bullion in their coins from time to time, until 
now they contain but a fraction of the value which their 


names originally called for. In the days of William, the 
Conqueror, the "pound" actually was a pound weight of 
silver, and a shilling was a twentieth part of a pound, but at 
the present time a pound of silver is coined into sixty-six 
shillings. The legal money of England has been regulated 
or altered in this way by the English government one hun- 
dred and eighty-four times. 

The specie basis system of Great Britain, which was 
adopted nearly two hundred years ago, owes its origin to 
the same cause — the necessity of increasing the medium of 
exchange. The effect of the system is to centralize weakh. 
In Great Britain it has enabled the aristocratic and moneyed 
classes to acquire enormous wealth, and has reduced the 
industrial classes to a condition of abject poverty. In the 
United States it has had the same tendency. 

The only people of former times, who seemed to fully 
understand the nature of money, were the Venetians. In 
the 12th century they adopted a system of money, based on 
the wealth and credit of the people, which lasted over 600 
years. Inscriptions on the books of a bank, established by 
/the State, which were divisible to any desired amount and 
transferable on the books of the bank from one to another, 
formed the chief medium of exchange during the period 
named. These inscriptions of credit were not redeemable 
in coin, but, notwithstanding that, they commanded a high 
premium over gold and silver. The Venetians were enabled, 
principally through their enlightened system of money, to 
attain great prosperity, which they enjoyed for centuries, 
And commercial crashes and money panics were unknown 
amongst them. (See Chap. IV.) 

The French people nianage their financial affairs with 
more wisdom than any other nation of the present day. 
When specie is scarce an irredeemable legal tender paper 


money is used in its stead. Great pains are taken by the 
French government to keep every section amply supplied 
with a circulating medium of exchange, in order to develop 
the producing forces of the country — a policy that has been 
crowned with marked success. 

The American people have had some experience in regard 
to the advantages of a legal tender paper money system 
since 1861, but the notes of the government (greenbacks) 
were issued in such a mutilated form, and the workings of 
the system have been so materially interfered with by the 
money power, by means of corrupt legislation, that as yet 
they have had no fair opportunity to judge of its real merits. 

From an early period, then, money came to derive its 
power, as an agent to represent, measure and exchange 
value, from public authority. Individuals and nations seek 
to exchange and accumulate property and commodities, and 
money is desirable only on account of the power, with 
which it is clothed by public authority, to command property 
or labor. It is not useful of itself, for it cannot be used as 
food, or clothing, or shelter. It must be parted with before 
any service or value can be' obtained from it. In an accumu- 
lated form, as capital, it can bring no income until it is put 
to use — parted with. It is, therefore, the immaterial princi- 
ple or power to represent value that is the essence of money, 
and this it can only derive from law. "Money is then," in 
the language of Kellogg, " a legal existence, being consti- 
tuted a national representative of property; consequently it 
is a public lien on all property for sale in the nation, a public 
medium for the exchange of products, and a tender in 
payment of debts." 


As money is a legal public medium of exchange, possess- 
ing representative value, it is not necessary that the material 


of which it is made should possess intrinsic or commercial 
value. To use again the language of the author last quoted, 
"The value of money perpetually depends upon its power to 
represent value and not upon its material, because money 
never reaches a point at which it can be used as an article 
of actual value." The value of the material can add nothing 
to its power as money; it can only render its value more 
certain, as when money is issued by a weak and irresponsible 
government, or by a nation possessing few or no products 
for which it can be exchanged. When issued by a stable 
and responsible government, whose people possess ample 
property and valuable products, its value corresponds to the 
value of the products of the country for which it can be 
exchanged. If money made of paper will procure the same 
property or commodities, as if made of a material possessing 
intrinsic value, like gold or silver, it possesses the same 
power in one instance as in the other. If A. has a ten 
dollar gold piece and B. has a ten dollar legal tender note, 
and the gold piece and paper money will each purchase the 
same article of value, in parting with them A. does not part 
with anything more than B., although A's money possesses 
an intrinsic value and B's does not. And as long as the 
gold piece is used as money, it is not possible for any one 
to derive any more use or value from it, than that which 
belongs to it in its representative capacity by virtue of law. 
Dr. Walker, a political economist of the bullionist school, 
in speaking of money as an instrument of exchange, says: 
"Anything which by general consent, or in obedience to 
law, all receive in exchange will answer the purpose (of 
money.) So far as this function is concerned, it is of no 
consequence whether the article has value or not; safety 
and convenience are the only considerations of importance. 
Money in this respect i* a ; V a counter, token or universal 


The power of money, then, whether made of a material 
possessing value or not, depends on its ability to represent 
value. How a piece of paper, possessing little or no intrinsic 
value, can acquire the power to represent value, will be 
explained further on. In the meantime it will appear from 
a slight examination that it is a disadvantage to money to 
possess an intrinsic value, and that gold and silver, however 
suitable they may be to adjust balances between nations, are 
not the proper substances out of which to make the circula- 
ting medium of a nation. If money possesses an intrinsic, 
as well as a representative value, it is then a commodity, as 
well as money, and is subject to two different and often 
antagonistic sets of laws. As money it seeks to perform the 
functions of money and to fill the channels of trade, while as 
a commodity it is compelled to obey the "uncontrollable laws 
of supply and demand." In commerce gold and silver are 
commodities and are taken in exchange for products, when 
they are preferable, in a business point of view, to other 
products or commodities, or in the settlement of balances, 
after an exchange of products has been made. They are 
thus liable to be taken at any time from the channels of 
circulation by the demands of commerce, and this can be 
done most readily when they are stored in bank vaults as the 
basis of bank notes. In this way the amount of the circu- 
lating medium in a country is rendered dependent on the 
wants and whims of other nations, and is, consequently, 
uncertain in amount and fluctuating in value. It may be safely 
asserted that there was scarcely ever a time in the history 
of the United States, when the specie basis system was in 
existence, that the Emperor of China could not have occa- 
sioned a commercial crash an^ ^ey panic, by simply 
decreeing that the idols "hipped by his 

subjects should be m° " 


Gold and silver money are objectionable on account of 
the inconvenience and risk which attend their use, and for 
many other reasons, but the chief objection to gold is its 
scarcity, which also renders it expensive. There is not 
sufficient gold money in circulation to answer the wants of 
any one of the leading commercial nations of the world, 
and for all to seek to use it as an exclusive medium, of 
exchange is simply an absurdity. It is true the difficulty is 
remedied in part in some countries by issuing paper notes 
based on gold, but these notes are not legal representatives 
of value, but merely representatives of the credit of those who 
issue them, and constitute, as experience has proved, an 
unsafe and unreliable medium of exchange, as will hereafter 
more fully appear. As compared with the vast amount of 
money required to pay interest on debts, national, state, 
municipal and corporate, and the expenses of governments, 
and to carry on the transactions of hundreds of millions of 
people, the amount of gold in use as money is as a grain of 
sand to a mountain. 

And when properly considered the intrinsic value of gold 
Arid silver is comparatively trifling. These metals owe 
their chief value to their use as money. If that use were 
•discontinued to any considerable extent, their value would 
depreciate in a corresponding degree. Only recently Ger- 
many demonetized silver, and it depreciated so rapidly in 
value that. it became a matter of importance to the German 
government to dispose of its supply at the earliest moment 
possible. In 1764 the British Board of Trade objected to 
the use of legal tender paper money in the colonies, doubt- 
less because it rendered the people of the colonies independ- 
ent of the money power of Great Britain, on the ground 
that " every medium of exchange should have an intrinsic 
value, which paper money has not." To this Dr. Franklin 


" However fit a particular thing may be for a particular 
purpose, whenever that thing is not to be had, or not to be 
had in sufficient quantity, it becomes necessary to use some- 
thing else, the fittest that can be got in lieu of it. * * Bank 
bills and bankers' notes are daily used here [in England] 
as a medium of trade, and in large dealings perhaps the 
greater part is transacted by their means, and yet they have 
no intrinsic value, but rest on the credit of those that issued 
them, as paper bills in the colonies do on the credit of the 
respective : settlements there. These (bank bills) being 
payable in cash upon sight by the drawers is, indeed, a 
circumstance that cannot attend the colony bills, for the 
reason, just above mentioned, their cash (bullion) being 
drawn from them by the British trade; but the legal tender 
being substituted in its place, is rather a greater advantage 
to the possessor, since he need not be at the trouble of going 
to a particular bank or banker to demand the money." 

"At this very time even the silver money in England is 
obliged to the legal tender for a part of its value; that part 
which is the difference between its real weight and denpm- 
ination. Great part of the shillings and six-pences now 
current are, by wearing, become five, ten, twenty, and some 
of the six-pences even fifty, per cent, too light. For, this 
difference between the real and nominal you have no intrinsic 
value; you have not so much as paper; you have nothing. 
It is the legal tender, with the knowledge that it dan easily 
be repassed for the same value, that makes three penny- 
worth of silver pass for six-pence" 

" Gold and silver are not intrinsically of equal value with 
iron, a metal in itself capable of many more benefits to 
mankind. Their value rests chiefly in the estimation they 
happen to be in among the generality of nations, and the 
credit given to the opinion that the estimation will continue* 


Otherwise a pound of gold would not be a real equivalent 
for even a bushel of wheat." [Franklin's Works: DuaneV 
edition, 1809; volume 4.] 

Gold or silver, or both, however, are used for the pur- 
poses of money by nearly all nations, and hence it is that 
these metals have come to be used in the commerce of the 
world, not as money, but as commodities, under the name of 
bullion, possessing an established and universally recognized 
value. . Gold at the present time is a commonly accepted 
equivalent for all other commodities. AX> will be borne- 
in mind, however, that this general recognition of the* 
value of gold depends chiefly upon the fact that gold is a- 
legal tender, when coined into money, in all nations where* 
it is used. No law exists compelling citizens of different 
nations to receive from each other gold in payment of 
debts, but people will always take that in payment of debts 
which they can in turn apply to the same purpose. It is 
incorrect, therefore, to speak of gold as the " money of the 
world." No such money has ever been established, nor can 
be until all nations adopt a uniform unit of value as well as 
of money. Different units of weight, length, value, etc., 
have grown up in different nations, in the same manner as 
different languages, manners and customs have grown up, 
and it would be almost as easy to establish a universal 
language as to induce the various nations of the world to 
adopt a common system of money. A person who takes 
$100 in gold, coined in the United States, to England, is 
obliged to sell his coin, just as he would sell a bale of cotton, 
in order to obtain money which will pass current in that 
country; and if he crosses over to France he is obliged to 
sell English coin in the same way. And it may happen, 
and frequently has happened, that a person may be unable 
to obtain money for gold or silver. During the financial 


crisis in England, in 1847, it was impossible to borrow a £5 
note on thousands of dollars worth of silver, because silver 
was not a legal tender for an amount over forty shillings, 
and was, therefore, practically useless for the purposes of 
money; and in Calcutta, where silver money is the legal 
tender of the country, during the stringency of 1864, it was 
impossible to borrow money on gold. It is well authenti- 
cated that, during that crisis, persons, with as much as 
$100,000 worth of gold in tjieir possession, were obliged to 
allow their notes to go protest, because they could not 
torrow $10 in silver money on a bushel of gold. 

Another clap-trap name given to gold and silver, now in 
•common use, is " honest money." Money is honest or not 
lionest according to the uses it performs ami the manner in 
"Which it performs them. Gold or silver may perform the 
uses of money in an honest manner — it is then "honest 
money;" but it has been, and still is, the misfortune of 
these naturally honest metals to be made the basis of all 
the rascally systems of money ever founded. 

And it may be well, too, to notice briefly another pet 
name vhich is much relied upon by the bulllonists to deceive 
and influence a large and intelligent class of people. In 
the memorable fight between the people, under the fearless 
and patriotic leadership of President Jackson, and the 
money power, represented by the United States Bank, the 
term "hard money" became deservedly popular. Gold and 
silver coin were then the people's money — the "honest 
money" of the country, as the greenback is now; and the gist 
of the controversy was then, precisely as it is in the pending 
struggle now, whether the people should retain the control 
of the circulating medium of the nation in their own hands, 
where it is placed by the Constitution of the United States^ 
6r should permit individuals and corporations to usurp 


the functions of the general government, and, in its steacj, 
make and regulate the medium of exchange of the country. 
(See Chapter V.) 

If gold and silver were demonetized by the principal 
nations of the earth, they would owe their value as commod- 
ities to the use that could be made of them for other pur- 
poses, as for ornaments or in the arts; and as they could 
then be had for such purposes in abundance, their value 
would doubtless diminish to but a fraction of what it is now. 


The uses of money correspond to its powers or properties, 
viz: to represent value, to measure value, to accumulate 
value and to exchange value.* Actual or real value belongs 
to property or products, which are necessary or desirable, 
and money is the legal medium by which it is represented, 
measured and exchanged. In an accumulated form, as 
capital, it represents accumulated property or labor, and is 
capable of accumulating value in the same manner that the 
property or labor which it represents could be used for that 
purpose. It measures value because it is the legal standard 
of value established by law, just as weights and measures to 
determine the weight, length and bulk of articles are estab- 
tablishedj and if based on sound principles, it would prove 
as unvarying, as a standard of value, as are the standards of 
measurement of weight and quantity. The value of prop- 
erty and products would then rise and fall in obedience to 
the laws of supply and demand, but the standard of value, 
money, would remain the same as previously determined by 
the law which instituted it, provided the law emanated from 
a responsible source. This may be illustrated in a measure 
by the greenback now in use, though not with the same 
degree of force and certainty that it could be done, if the 

♦See Kellogg, page 46. 


greenback had not been mutilated and depreciated by law. 
The value of property and commodities is now measured by 
the greenback, because the value of the greenback corres- 
ponds to the idea of value carried in the minds of the people 
of the United States. The unit of value in the United States 
is the dollar, and this unit of value is fixed in the mind, just 
as the units of measurement expressed by a pound, a bushel, 
a yard or a degree, are fixed there, that is by use and custom. 
Partial legal tender paper money (the greenback) is now 
the money or medium of exchange of the country, and cor- 
responds to the idea of value fixed in the minds of the 
people. People think in greenbacks when estimating 
value. If told that the price of a horse is $100, the amount 
or value is instantly referred to the greenback standard of 
measurement. The price of particular commodities, as well 
as the price of gold, may change daily without affecting the 
prices of other commodities, as measured by the greenback 
standard, which could not be the case if it were the green- 
back that fluctuated. Hence it may be inferred, among 
other things, that editors of newspapers, who quote green- 
backs as worth so many cents on the dollar as compared 
with gold, are either grossly ignorant of the nature of money, 
or have become entangled in the toils of the money power. 
But it is of the uses of money in a less technical sense 
that we wish to speak. Money has come to be a vital ele- 
ment in production, in the operations of trade and in the 
business details of life. In a simple state of society, as in new 
countries even now, individuals and families are for the 
most part self-supporting. The farm supplies food and the 
material for clothing, and the spinning wheel and loom are 
found in every household. But where the advantages of 
civilization and a medium of exchange have once become 
common, a very different condition of affairs exists. The 


merchant, the tailor, the carpenter, the shoemaKer, the 
blacksmith, the doctor, etc., etc., have made their appearance, 
and individuals and families are no longer self-supporting, 
but wholly dependent upon each other. Money is then a 
necessity. Food, clothing, rent, fuel, light, taxes, insurance, 
railroad fares, etc., etc., require cash* and a general scarcity 
of money will occasion want and suffering, even in the 
midst of plenty. How dependent individuals are upon each 
other in a state of civilization, is thust set forth by Kellogg: 

"The necessity for the exchange of commodities is gen- 
erally acknowledged. Few, however, even among thinking 
men, are aware how indispensable these exchanges are to the 
subsistence and comfort of the human family. Men are 
social beings, and mutually dependent. To appreciate this 
important truth, we must consider the inability of each man 
to provide for the numerous wants of his nature; and the 
ignorance and discomfort to which each would be exposed, 
were he not benefited by the labor of others. If every man 
could build his own house, furnish his own food and cloth- 
ing, and make all the instruments and utensils that he needs 
to use: if the materials for all these things were placed upon 
every acre of land, and every man, woman and child, were 
endowed with sufficient skill and strength to produce them, 
there might be no need of an exchange of commodities. 

But all men are, in many, in most things, dependent on 
the labor of their fellow men. For example, take the 
farmer, who is acknowledged to be the least dependent of 
men, and see for how many things even he is indebted to the 
labor of others. He must have implements for the cultiva- 
tion of his farm, a plow, harrow, shovel, hoe, sickle, cradle, 
scythes, at fan, or fanning mill, and a cart or wagon. The 
farmer is dependent on the miner for the iron ore; on the 
collier to dig the coal; on the furnace worker to smelt the 


iron; on the forger and the smith to make him his iron and 
steel instruments. He is dependent on the wagon maker for 
his wagon; on the machinist for his fanning mill; on the 
carpenter for his house; on the nail maker for nails; on the 
glass manufacturer for glass; on the stone cutter and thj$, 
mason for mason work; on the brick maker for bricks ' r on 
the cooper for barrels, tubs and pails; on the saw maker for 
a saw, and on the rolling mill to roll out the iron or, steel 
for it; on the tin-plate worker for kitchen- utensils; on the 
moulder and caster of iron for iron pots; on the miner of 
copper, and on the copper and brass founder for brass and 
copper kettles; on the pump maker for a pump> etc., etc.. 
He is dependent on the needle maker, the pin maker, the, 
button maker, the silk grower, the tanner ? the shoemaker* 
the hatter, the saddle and harness maker, the cabinetmaker,; 
and, the type maker, type setter and printer. Not one of 
these artisans, in attending to his.. particular employment,; 
produces his food and clothing; and all would be destitute 

■ it* i 

of : them, unless supplied with them by the labor of others. 
The farmer raises all of his food, except salt, tea, coffee, 
sugar ? molasses, spices; and the like; these, and the ships to 
transport, them, must be furnjshed hy others,..: These wan,t*k 
call into employment ship ^carpente^s, jailors, compass, 
makers, • surveyors, chart makers, etc. The farmer., must, 
raise wool, cotton, hemp ; or flax, pr else be dependent on 
others for. clothing. If the farmer, who is the least depend-, 
ent qf men, receives from others so many suppliers, how. is, it 
witji the hatter and shoemaker? The former makes an 
article to cover the head, the latter one, to cover the feet; 
and all the additional supplies of both must be furnished by 
the, labor of others. Artisans, too, depend upon each other 
for the different parts of their work; the ootton manufac- 
turer must be assisted by others to carry forward tis manu- 


facture. Many articles, such as w&tch springs, are useless 
unless they are combined with other parts. It is, then, of 
paramount importance that no obstacles be thrown in the 
way of a ready exchange of commodities. 

A certain quantity of one kind of produce is worth as 
much as a certain quantity of another kind; and all civilized 
nations have adopted some medium by means of which all 
kinds of produce may be more easily exchanged than by 
direct barter. We hear it sometimes asserted that there is 
no need of a : medium of exchange. But the articles of trade 
could not be. divided and distributed to supply the numerous 
wants of a people without a representative of value through 
which the distribution could be made. For example, a man 
brings to market five hundred bushels of wheat. The. pur- 
chaser tenders qorn in payment; and they agree that seven 
hundred and fifty bushels of corn are worth as much as five 
hundred bushels of wheat. The seller can use but a small 
portion of the com, and finds a purchaser, with whom he 
exchanges the surplus for hams. He disposes of the hams 
for hats and shoes. If he endeavor to divide the hats and 
shoes, and exchange them for the articles that he needs, he 
may spend two years before he can return to his farm to 
raise a second crop of wheat. Yet he is fairly dealt with. 
All those with whom he exchanges, give him, as nearly as 
possible, an equivalent of actual value for the actual value 
that they rq^eive; and all the articles are such as all need. 
In fact, all trade is simply a barter of one useful thing for 
another. A person who produces more of an article than 
he needs for his own use, exchanges his surplus for the 
surplus articles of others. If the farmer had sold the wheat 
for wi^ney, the money would have been a tender for any 
other ; article that he wished to purchase." 

In th,e large operations of trade, as with foreign countries 


and between different sections of the country, vast sums of 
money are constantly required. The foreign trade of the 
United States in ordinary times amounts to nearly $1,000,- 
000,000 a year, and the trade between the different sections 
of the country amounts to probably five times that sum. It 
is true that, in the trade with foreign nations and between 
different parts of the nation, the transfer and re-transfer of 
money from one to the other is rendered unnecessary by the 
use of checks, drafts and bills of exchange, except to settle 
balances; but in the production, transportation, repeated 
handling and distribution of the commodities:, represented 
by the vast sums referred to, the amount of money required 
is enormous. For example, in the movement of the crops of 
the Western States alone more cash is required each year 
than can be had for the purpose; and in the days of the 
specie basis system the Western banks, as is well known* 
were in the habit at such times of issuing their notes without 
any regard to legal limitations. President Grant in his 
message of December, 18*73, after the panic and before he 
tad become debauched by the money power, called the 
attention of Congress to the fact in the following language: 
"It is patent to the most casual observer that much more 
currency or money is required to transact the legitimate 
trade of the country during the fall and winter months, 
when the vast crops are being removed, than during the 
balance of the year. With our present system, Ifche amount 
in the country remains the same throughout the entire year, 
resulting in an accumulation of all the surplus capital of the 
country in a few centers, when not employed in moving 
crops', tempted there by the offer of interest on call loans. 
Interest being paid, this surplus capital must earn the 
interest paid with a profit. Being subject to * call,' it can 
not be loaned, only in part at best, to the merchant or man- 


ufacturer, for a fixed term. Hence, no matter how much 
currency there might be in the country, it would be absorbed, 
prices keeping pace with the volume, and panics, stringency 
and disasters would ever be recurring with the autumn. 
Elasticity in our monetary system, therefore, is the object to 
be attained first, and next to that, as far as possible, a pre- 
vention of the use of other people's money in stocks and 
other species of speculation." 

Money is also an important element of production. When 
the channels of circulation are supplied with money, the 
industries of the country are quick and active, and the entire 
nation becomes engaged in adding to its wealth. It has 
been well said that "A nation, whether it consumes its own 
products, or with them purchases from abroad, can have no 
more value than it produces. The supreme policy of every 
nation, therefore, is to develop the producing forces of its 
own country. What are they? The workingmen, the land, 
the mines, the machinery, the water power, etc."* The 
producing forces of a country can be developed only slowly 
and laboriously without the aid of money. The productive 
soil, the iron, the coal, the timber, the water power, the 
machinery, the labor, etc., may all be at hand, but until 
touched by the vitalizing current of money, as it circulates 
in the channels of trade, they can give forth but a feeble 
spark of the life and power which they possess. 

At an early day in the history of the colonies the inhabi- 
tants were subjected to great drawbacks for the want of a 
legal medium of exchange. Dr. Franklin, in 1764, stated to 
the British Board of Trade that: "In 1723 Pennsylvania 
was totally stripped of its gold and silver. * * * The 
difficulties for want of cash were accordingly very great, 
the chief part of the trade being carried on by the extremely 

•Sir John Barnard Byles. 


inconvenient method of barter, when, in 1723, paper money 
was first made there which gave new life to business, promo-* 
ted greatly the settlement of new lands, whereby the 
province has so greatly increased in inhabitants that the 
export from thence thither [to England] is now more than 
ten fold what it then was." 

In 1*755 Virginia was badly in need of money or a medium 
of exchange. A paper money bottomed on a specific tax 
was issued, which afforded abundant relief, and, as we learn 
from Jefferson, never depreciated a farthing in. value. But 
a more marked instance of the value of money as an element 
of production is furnished by the experience of Pennsylva- 
nia during the present centuiy. In 1841 the people of 
Pennsylvania were on the verge of bankruptcy. The State 
was unable to pay interest on the public debt, or even pay 
the wages of laborers for work done on the, .public worfc^ 
Corporations were bankrupt, and merchants were in pearly 
as bad a situation. There was no money, and consequently 
trade and production were completely paralyzed. The State 
of Pennsylvania in this crisis issued $3,1.00,000 of what 
were called relief notes, bearing simply a pj^mise ; that they 
would be received by the Treasury of the. State in payment 
of all taxes and other obligations due to the State. "These 
notes were taken greedily by the people. Banks inserted in 
the front of their books an agreement that the depositor 
should receive on check the same, kind of money he depos- 
ited, and then took these notes. They discounted paper 
with them. The wheels of industry were set in motion by 
these notes, which promised nothing but that they would 
be received in payment of State taxes. The State paid her 
domestic creditors, and these hastened to pay theirs or to 
supply their wants . by purchase. Crops, for which there 
had been no market, moved; the loom and the spindle were 


again heard; labor, lifted from despair, found work and 
wages, and with the great resources of Pennsylvania under 
full and free development, she was soon exporting more 
than she imported. Gold and silver flowed in upon her; 
and the broken banks resumed specie payments. We then 
did," says the Hon. William D. Kelley, of Pennsylvania, 
from whom we quote, "what France does; we were wise 
enough then to know that it is labor, not coin, that main- 
tains the public credit and gives prosperity to the people." 

But the people of the United States have had ample proof, 
4uring the past few years, of the great advantages to be 
derived from an abundance of money. The activity in all 
forms of productive industry during and immediately after 
the war, which constituted an inexhaustible fountain of 
strength to the Federal Government, and which, in spite of 
the ravages of war, enabled the country to double its wealth 
in ten years, from 1860 to 1870, was attributable entirely to 
the vast amount of money, or evidences of indebtedness of 
the government used as such, that then filled the channels 
of circulation. The condition of the country then, when 
money was plenty, and now, under the policy of contraction, 
which has withdrawn the circulating medium of exchange 
from the channels of trade, is thus eloquently portrayed by 
the distinguished statesman quoted above (Kelley), in a 
recent address to the citizens of Philadelphia: 

"You have seen a strong man, full of life, rise in the morn- 
ing as a lion shakes the dew from his mane and go forward 
to the battle of life, full of vigor, full of hope, full of energy, 
full of enterprise. His brawny nether limbs bear his stout 
body ably; his muscular arm and his cunning hand go glibly 
and gladly to their duties, performing their functions. But 
an accident happens, an artery is cut; the blood does not 
ooze, but flows from him. The surgeon comes just in time 


to save his life. He staunches the wound and binds it up. 
But the man is another being, he lies there pallid and 
shrunken. His sturdy limbs will not even bear his wasted 
body. His muscles are flaccid, and his fingers have lost 
their skill. His energy is gone, and he dreains not of enter- 
prise. This is our condition to-day as a people. In 1865 
and 1866 every man in America who had the skill and the 
will to labor could earn wages to support his family and lay 
something by. All industries were quick and active. Pro- 
duction ran on. The American people waked up each new 
morning to feel that there were great duties before them; 
that there were mines to be opened, forges and furnaces to 
be erected to work the iron, the copper, the silver and the 
gold. New houses were built. Skill, energy, science and 
genius were taxed to quicken and cheapen productive pro- 
cesses. Our wealth grew as it, or that of any other people, 
had never grown. We were moving onward, when one 
Hugh McCulloch tapped, a great artery and let nearly all 
the blood flow from the body politic. Diseased, paralyzed, 
shrinking from day to day, what American has the energy 
to engage in developing a new mine? Pennsylvanians, who 
of you are ready to construct a new forge or a hew furnace? 
Where are factories building to-day? Your laborers — 
moody, suliefc, in want — are begging the poor privilege of 
earning a day's food by an honest day's labor. Their homes 
are being stripped of everything they cheiish. Go through 
the suburbs of your city, halt before the houses where of a 
Sunday afternoon you would, a few years ago, have found 
the family gathered about the melodeon or the cheap piano, 
singing the praises of Him who had given them their lines 
in these pleasant places. Ah! the house is silent now; the 
father is out of employment, the sons are in idleness, the 
daughters have no work; the melodeon or piano is gone. 


Aye, worse than that, the most cherished mementoes, though 
of little value measured in dollars and cents — the cheap 
jewelry — the trinket that the young lover toiled in over 
hours that he might buy and see it grace the person of his 
sweetheart, the amulet he hung upon the neck of his bride 
— the silver cup that marked the birth or christening of their 
first born— cherished by all, but they have gone to the 
pawnbroker or jeweler to bring them food. Courage gone, 
hope gone, despair crushing him to the earth, and destroy- 
ing all the pride that made the American mechanic the 
boast and honor of his country, how many a man to-day, 
longing for honest work but powerless to obtain it, creeps 
and crawls from town to town, foot-sore, ragged, dusty, to 
beg from strangers rather than from those who know him 
and will remember it — to be denounced as a 'tramp' and 
commended to the custody of the police!" 

As the end and object of money are to exchange com- 
modities and promote production, it should be increased in 
amount in proportion to the increase of population and 
trade. Bullionists assert the contrary, but they can furnish 
no sound reason or proof upon which to base their theory* 
They invariably rest their argument on the fact that nations 
have increased in wealth and population without adding to 
their monetary circulation, and m&st always cite Great Brit- 
ain as a case in point. Properly considered the experience 
of Great Britain does not sustain their theory. How does 
Great Britain manage to conduct its large and increasing 
business without a corresponding increase, of money? The 
answer is by means of inflated bank credit. On account 
of the want of a sufficient medium of exchange, the British 
people are compelled to use and pay for the credit of banks 
to an enormous extent. This is a heavy tax upon the indus- 
trial classes of that kingdom, and explains why the wealth 


of the people is constantly flowing into the hands of the 
few. We find the following statement used by Dr. Walker, 
a political economist of the bullionist school, to show how 
nicely the people of Great Britain can get along with but a 
limited amount of money. We submit that it shows much 
more forcibly to what a desperate use of inflated credit / 
that nation has been driven by a false monetary system. 
He says: " As : an illustration in point, Sir John Lubbock 
gave, in a paper read before the Statistical Society, in June, 
1865, an- analysis of £19,000,000 paid into his banking house 
in a few day s, as follows: 

Checks and bills £18,395,000, or 97 per cent. 

Bank of England notes 408,000 ) 

Country notes 79,000 > 3 per cent. 

Coin 118,000 ) 

From which statement it appears that only three per cent, 
were paid in the form of money, i. e., notes and coin 
together, of which a little more than one-half of one per 
cent, was in coin" The bullionists pretend to be very 
much, afraid of the evil consequences of inflation; but when 
the mask is torn off, it is apparent that they are only con- 
cerned about retaining the power to inflate in their own 


Every nation has its own peculiar system of finance, the 
difference consisting more in details than in principles. 
The financial system of the United States is now composed 
of the Independent Treasury Bureau for the receipt, custody 
and disbursement of the revenues; of the Treasury proper, 
which maintains an issue of about $370,000,000 of Treasury 
notes (greenbacks), constituting the legal tender medium 
of the country, and about $45,000,000 of fractional currency; 
of the National Banks, over 2,200 in number, with a circulation 


of over $360,000,000; and a number of State Banks, estab- 
lished under State authority. 

The medium of exchange of the United States, it will be 
observed, is composed of Treasury notes (greenbacks) and 
bank notes. It is important to notice the difference between 
the Treasury note and the bank note, because they belong 
to two entirely different and distinct systems of money; and 
a clear perception of the difference is essential to a proper 
understanding of the money question and of the political 
Issues, growing out of it, which now agitate the country. 

A bank note is a bill of credit, promising payment in law- 
ful money on demand, issued by and resting on the credit 
of a private corporation established by law. Being payable 
or redeemable in money on demand, it represents money 
and circulates as such, and performs nearly all of its func- 
tions. Private corporations, therefore, upon whom the 
privilege or power to issue bank notes is conferred, are 
practically invested with the authority and power to make 
and put in circulation a medium of exchange. If the bank 
note is sec ured by a deposit of stock or bonds to insure its 
payment and maintain its value, as is the case with the 
National Bank note, which is secured by a deposit of United 
States bonds in the Treasury of the Federal Government, it 
will form a perfectly safe, uniform and convenient medium of 
exchange. But a bank note possesses two peculiar features, 
which do not belong to money, (of any kind, whether made 
of gold, silver, or paper) and which render it a costly 
medium of exchange. One peculiarity of a bank note is 
that it enters into cir culation encumbered with interest, and 
constantly accumulates value, whether it is in use or not. 
Its very existence, therefore, is a tax upon production and 
trade. The other peculiarity, which grows out of the one 
just mentioned, is that a bank note is not free to obey the 



natural laws of trade, but is subject to the will and control 
of the corporation which puts it in circulation. This* can be 
made perfectly clear by supposing two notes, a greenback 
and a National Bank note, to be put into circulation at the- 
same time and observing the course taken by each. A 
greenback dollar is paid out by the United States govern- 
ment to A. for its equivalent in labor or value. A. pays it. 
to B. for a dollar's worth of commodities. B. lends it to C. 
for thirty days at 6 per cent interest. C. pays it to D. for a. 
debt. D. retains it in his possession for three months and 
then puts it in circulation again. It passes from hand to 
hand, until finally it reaches Z., who pays it to a collector of 
internal revenue, when it is returned to the federal Treasury, 
to be used over and over again in the same manner. While 
performing its use as a medium of exchange, it bore no 
interest ' When held by D. for three months in a state of 
idleness, it accumulated no value for any one. It is "true B. 
lent it to C. for thirty days at 6 per cent, interest,, but that 
was an individual transaction and extended no further, than 
the parties concerned. As soon as C. put it in circulation 
again, it went on its way, as free and unencumbered as 
when it left the Treasury of the United States. But it is 
very different with a bank note. The bank, which issues it> 
lends it to A. for sixty days at say 6 per cent, interest, and 
A. puts it in circulation. At the expiration of sixty days, A., 
unable to return the identical note which he borrowed, pays 
the bank with a greenback or another bank note. This note 
in turn is immediately lent to B., and the process goes on 
indefinitely. The original bank note thus constantly realizes 
interest and accumulates value for the bank, whether it. 
circulates in the channels of trade, or reposes in the vaults 
of the bank as a deposit, or lies rotting at the bottom of the 
ocean. This interest comes out of the profits of production. 


and is a tax upon the community at large. The tax thus 
imposed upon the public for a medium of exchange is a 
greater burden than industry can bear, and every few years 
labor is driven to the wall and production, except of the 
necessities of life, ceases. To promote production, or in 
other words, to " develop the producing forces of a country," 
it is, as we have seen, more essential to have a cheap medium 
of exchange, than it is to have cheap transportation; but a 
bank note is th« most expensive medium of exchange that 
could possibly be devised, because it is accumulating value- 
all the time, whether it is performing the uses of money or' 
not. The bank note is subject to the will and control of 
the corporation which issues it, because when the bank 
ceased to discount paper, as it usually does whenever there 
is a money stringency, and calls in its circulation, it is 
obliged to leave the channels of trade, no matter how much 
its services are needed as a medium of exchange, and return 
to the bank. But this is not all. The tax which banks are 
thus authorized to impose on the medium of exchange 
issued by them, enables them to control not only their own 
notes, but the money of the country, whether coin or legal 
tender paper money, as will be more fully explained m 
another chapter, and thus it happens, as at the present time, 
that the circulating medium of the nation every few years 
becomes concentrated in the money centers of the country. 

A bank note medium of exchange, whether redeemable in 
coin, as in England, or in greenbacks, as in the United 
States at the present time, it will, therefore, be observed, 
constitutes a peculiar and distinct system of money, and one, 
it may be added, that has proved an infinite source of dis- 
aster and weakness in both England and America. 

It was for these reasons, in days gone by, that Jefferson 
insisted that "Bank paper must be suppressed and the circu- 


lation restored to the nation to whom it belongs;" that John 
Adams denounced bank paper as a vile freak of those who 
were shapen in Toryism and British idolatry; that Jackson 
waged war on banks of issue; that Calhoun labored to 
establish a legal tender paper money, to be issued by the 
Federal Government; and it is for the same reasons that a 
host of the foremost statesmen, political economists and 
philanthropists of the country are to-day urging the people 
of the United States to assert their rights and prevent the 
money power from destroying the greenback, in order that 
they may sub stitute the National Bank note in its stead, and 
thus secure the entire control of the medium of exchange of 
the nation. 

A Treasury note issued by the Federal Government* repre- 
sents the property and production s of the country to the 
amount or value inscribed on its face. It rests on the credit 
of the government in • the same manner that a bank note 
Tests on the credit of a corporation, and represents the 
property and productions of the country (including gold 
and silver) for which it is exchangeable, just as a bank note 
represents the coin ot Treasury note in which it is payable 
40r redeemable. The foundation of the Treasury note is 
the same as that of a United States bond, which secures the 
payment and maintains the value of the bank note, and it, 
therefore, possesses the highest and best security that a 
medium of exchange can possibly have.* A bank note is a 
promise to pay money, but a Treasury note, being a legal 
representative of value (property and products), is money. 
It is not, therefore, a promise to pay — it would be more 
accurate to describe it as a, promise to receive. It is true 
that the present legal tender money of the United States 
(the greenback) professes to be a promise to pay, which is a 

♦See note at the end of this chapter. 


misfortune, because it misleads people, even professors of 
political economy,* but the promise is an empty phrase, 
wholly foreign to the nature of the Treasury note and the 
principles upon which it is based. It was spread on the face 
of the greenback at the instance of the money power, which 
was unwilling to recognize any other kind of money than 
that based on bullion, and for the purpose of depreciating 
its value as a medium of exchange. 

It is apparent, therefore, that legal tender paper money or 
Treasury notes and bank notes belong to two separate and 
distinct systems of money, based on entirely different prinr 
ciples. In the one case the medium of exchange is furnished 
by the government and subject only to the natural laws 
which govern trade. In the other, it is furnished by private 
corporations, who tax the public heavily for its use, : and is 
subject, not to the laws of trade, but to the control of the 
corporations issuing it. In Great Britain, where the system 
originated, the legal tender money of the country, in which 
bank notes are payable, is gold and silver, as was th6 
case in the United States prior to the war, and hence 
the system is commonly known,, and is generally referred 
to in these pages, as the specie basis system. When the 
medium of exchange is limited to gold and /silver, or paper 
money based on gold and silver, the public is compelled, on 
account of the scarcity of these metals, to use bank credit, 
which explains why the money, power is now striving to 
force the American people to submit to a return to specie 
.payments, no matter at what sacrifice. 


The power to make and regulate money has long been 
recognized as a governmental function, or, in the language 
of Tooke, "In every civilized country supplying and. regn- 

*8ee Professor Newcomb's filly comments on this point In Appendix. 


Iating the circulating medium is a function of sovereign 
prerogative.'* The reason of this is obvious. Money to be 
a public medium of exchange must possess legal representa- 
tive value, and this can be derived only from the sovereign 
or law making power of a nation. The bullionists do not 
concede this, but profess to believe that the government is 
vested simply with the power to coin gold and silver, 
because " the State can do the work best, * * as no 
attestation (of the weight and purity of coin) furnished by 
private persons can compete in authority with the stamp 
imposed by the government mint."* This view of the 
matter grows out of the peculiar ideas in regard to the 
nature of money held by those>who advocate the specie 
basis system. Bonamy Price, Professor of political economy 
in the University of Oxford, England, says: "Coin, metallic 
coin, alone is true money and nothing else is, unless it be a 
commodity, as an ox, a cow, or a piece of salt," — precisely 
the same theory of money, it will be observed, as that held 
by the ancient Romans, who used bars of copper and cattle, 
and by the American Indian of the present day. 

The Constitution of the United States confers upon Con- 
gress the following, among other, powers, viz: "To lay and 
collect taxes, duties, imposts and excises, to pay the debts 
and provide for the common defense and general welfare 
of the United States; * * to borrow money on the 
credit of the United States; * * to coin money, regulate 
the value thereof and of foreign coins; * * and to make 
all laws which shall be necessary and proper to cany into 
.effect the foregoing powers, etc." It also prohibits . the 
States from coining money, emitting bills of credit, or mak- 
ing anything but gold or silver coin a tender in payment of 
-debts. The exclusive power to make and regulate the 

•Currency and Banking, by Bonamy Price, page 17. 


medium of exchange, therefore, devolves upon the Federal 
Government At the time the Federal Constitution was 
framed the money question was one that had to be handled 
with great delicacy. The money power, then as always in 
fact, was on the alert, and care had to be taken not to incur 
its hostility, lest it might prevent the ratification of the Con- 
stitution by the several States. When it was proposed to 
insert a clause in the Constitution empowering the Federal 
Government "to emit bills of credit," it was boldly stated 
on the floor of the Convention that "the moneyed interest 
would oppose the plan of government if paper emissions 
(bills of credit) be not prohibited,", and the clause was 
rejected by a vote of nine States against to two for. As 
"bills of credit" are promises to pay in lawful money and 
belong to the specie basis system of money, it is fortunate 
that no .such provision was inserted in the Constitution. In 
this respect its framers, perhaps, "builded better than they 
knew." As the Federal Government is clothed with no 
power "to emit bills of credit," and States are expressly 
prohibited from doing so, it is a veiy pertinent question as 
to how either the Federal or a State government can dele- 
gate that power to a private corporation. Individuals can 
issue promises to pay, because they are in the nature of a 
common contract, but when it comes to corporations issuing 
promises to pay (bills of credit), under special authority 
of law, which are clothed with the attributes of money, it is 
a very different matter. The well known legal maxim 
that what one "does through another he does himself," 
would seem to fit the case pretty closely. But the people 
can not afford to waste time with constitutional quibbles. 
They can compel their Representatives in Congress to 
extinguish banks of issue and " restore the circulation to the 
nation to whom it belongs,"* and if it is necessary to amend 

•Thomas Jefferson. 


the Constitution in order to accomplish that purpose, they 
can also do that. , 

But there seems to be no difficulty so far as the Constitu- 
tion is concerned. That the framers of the Constitution, 
when they refused to empower the Federal (Government "to 
emit bills of credit," did not intend to prohibit paper money 
or in any way curtail the legitimate functions of government 
with respect to making and regulating the medium of 
exchange of the country, is apparent from cotemporaneous 
history, as well as the subsequent course of the govern- 
ment. Mr. Madison, who was a member of the Convention 
which framed the Constitution, in speaking of his vote 
against empowering the Federal Government "to emit bills, 
of credit," says: 

"The vote in the affirmative by Virginia was bccasionecT 
by the acquiescence of Mr. Madison, who became satisfied 
that striking out the words pto emit bills of credit'] would' 
not disable the government from the use of public notes, as- 
far as they could be safe and proper; and would only cut off 
the pretext for a paper currency, and particularly for making 
the bills [of credit currency] a tender either for public or 
private debts." [See " Madison Papers."] 

Mr. Jefferson repeatedly urged that banks of issue should' 
be suppresed and that public notes issued by the federal 
Government should be substituted for bank notes as a 
medium of exch ange. In a letter dated June 24, 1813, to 
his son-in-law Eppis, who was a member of the committee 
of ways and means of the national House of Representatives, , 
urging this point, he said: 

"In the war of 1755, our State availed itself of this fund, 
by issuing a paper currency, bottomed on a specific tax for 
its redemption, and to insure the credit, bearing an interest 
of five per cent. Within a very short time, not a bill of this 


emission was found in circulation. It was locked up in the 
chests of executors, guardians, widows, farmers," etc. 

"We then issued bills bottomed on a redeeming tax, but 
bearing no interest. These were received, and never depre- 
ciated a single farthing." 

"In the revolutionary war, the old Congress, and the 
States, issued bills, without interest and without tax. They 
occupied the channels of circulation very freely, until those 
channels were overflowed by an excess beyond the 'calls of 
circulation. But although we have so improvidently suffered 
the field of circulating medium to be filched from us by 
private individuals, yet I think we may recover it, in part, 
and even in the whole, if the States will co-operate with us." 

"If Treasury bills are emitted, on a tax appropriated for 
their redemption in fifteen years, and (to insure preference 
in the first moments of competition) bearing an interest of 
six per cent., there is no one who would not take them in 
preference to bank paper now afloat, on a principle of patri- 
otism, as well as interest, and they would be withdrawn 
from circulation into private hoards to a considerable 
amount. Their credit once established, others might be 
emitted, bottomed also on a tax, but not bearing interest; 
and if ever their credit faltered, open public loans, on which 
these bills alone should be received as specie. These oper- 
ating as a sinking fund, would reduce the quabtity in circu- 
lation, so as to maintain them in an equilibrium with specie. 
It is not easy to estimate the obstacles which, in the begin- 
ning, we should encounter in ousting the banks from the 
possession of circulation." 

Mr. Jefferson's plan, it will be observed, is identical in 
principle with the much derided 3.65 inter-convertible bond 
plan, so ably advocated by Pliny Freeman, Judge Kelley^ 


Horace Greeley* and a host of able and earnest friends of 
the American masses. 

The issue of Treasury notes under the Constitution accord- 
ingly began at an early day, though not without meeting 
with fierce opposition from the money power, and their 
legality has been sanctioned from the first by all depart- 
ments of the government. The first issue of Treasury notes 
was made in pursuance of an act of Congress of June 30, 
1812. Further issues were authorized by the acts of Con- 
gress of February 25, 1813; March 4, and December 26, 
1814; October 12, 1837; January 31, and August 31, 1842; 
July 22, 1846; and January 28, 1857. 

The validity and constitutionality of these acts were tested 
and affirmed in the Supreme Court of the United States, in 
the case of Thorndike against the United States. Judge 
Story, in delivering the opinion of the court, said: 

"By the statutes of the United States, under which the 
Treasury notes have been issued, it is enacted that such 
notes shall be receivable in payment to the United States 
for duties, taxes, and sales of public lands, to the full 
amount of the principle and interest accruing, due on such 
notes. It follows, of course, Jthat they are a legal tender 
in payment of debts of this nature, due to the United States; 
and, by the very terms of the acts, public officers are bound 
to receive them." 

When the act of Congress of October 12, 1837, author- 
izing an issue of Treasury notes, was pending, Mr. Calhoun 
advocated the measure in strong terms. The following 
extracts from a speech delivered by him September 19th, 
prior to the passage of the bill, confirm the distinction which 
we have made between public notes and bills of credit, and 
explain what was meant when we stated that it would be 

*Horace Greeley's famous editorial on the 3.65 Bond plan will be found in the 


more accurate to describe a greenback as a promise to 
receive than a promise to pay.* He said: 

"It is, then, my impression, that in the present condition 
of the world, a paper currency, in some form, * * is 
almost indispensable in financial and commercial operations 
of civilized and extensive communities. In many respects 
it has a vast superiority over a metallic currency, especially 
in great and extended transactions, by its greater cheapness, 
lightness, and the facility of determining the amount" * * 

"It may throw some light on this subject to state, that 
North Carolina, just after the revolution, issued a large 
amount of paper, which was made receivable in dues to her; 
it was also made a legal tender, but which, of course, was 
not obligatory after the adoption of the Federal Constitu- 
tion. A . laige amount, say between four and five hundred 
thousand dollars, remained in circulation after that period, 
and continued to circulate, for more than twenty years, at 
par with gold and silver during the whole time, with no 
9tfrer advantage than being received in the revenue of the 
State,, which was much less than one hundred thousand 
^Uars per annum." 

,?.$Jo one.can doubt bu$ that the government credit is 
better than that of any bank; more reliable — more safe. 
Why, then, should it mix it up with the less perfect credit 
of those institutions? Why not use its own credit to the 
amount of its own transactions? Why should it not be safe 
in its own hands, while it shall be considered safe in the 
hands of eight hundred private institutions, scattered all 
over the country, and which have no other object but their 
own private profit; to increase which they extend their 
business to the most dangerous extrenies. And why should 
the community be compelled to give six per cent, discount 

•See page 62. 


for the government credit, blended with that of the bank, 
when the superior credit of the government ' could be fur- 
nished separate, without discount, to the mutual advantage 
of the government and the community?" * * * 

" Believing that there might be a sound and safe paper 
currency, founded on the credit of the government exclu- 
sively, I was desirous that those who are responsible, and 
have the power, should have availed themselves of the 
opportunity." * * 

"We are told the form I suggested is but a repetition of 
the 'old Continental money; a ghost that is ever conjured 
up by all who wish to give the banks an exclusive monopoly 
of government credit. The assertion is not true; there is 
not the least analogy between them. The one was a promise 
to pay, when there was no revenue; and the other a promise 
to receive in the dues of government wl*en there is abun- 
dant revenue." 

" We are told that there is no instance of a government 
paper that did not depreciate. In reply, I affirm, that there 
is none, assuming the form I propose, that ever did depre- 
ciate. Whenever a paper, receivable in dues of government* 
had anything like a fair trial, it has succeeded. Instance 
the case of North Carolina, referred to in my opening 
remarks. The drafts of the Treasury, at this moment, with 
all their incumbrance, are nearly at par with gold and silver. 
* * * The case of Russia might also be mentioned. In 
1827 she had a fixed paper circulation in the form of bank 
notes, but which were inconvertible, of upward of one hun- 
dred and twenty millions of dollars, estimated in the metallic 
rouble, and which had for years remained without fluctua- 
tion, having nothing to sustain it, but that it was received in 
the dues of the government, and that too with a revenue of 
only about ninety millions of dollars annually. I speak on 


ihe auJflioiity of a respectable traveller. Other instances, 
no doubt, might be added, but it needs no such support." 

"It has another striking advantage over bank circulation, 
in its superior cheapness, as well as greater stability and 
safety. Bank paper is cheap to those who make it; but 
dear, very dear, to those who use it, fully as much as gold and 
silver. It is the little cost of its manufacture, and the dear 
rates at which it is furnished to the community, which gives 
the great profit to those who have a monopoly of the article. 
Some idea may be formed of the extent of the profit, by the 
splendid palaces which we see under the name of banking 
Louses, and the vast fortunes which have been accumu- 
lated in this branch of business; all of which must ultimately 
be derived from the productive powers of the community, 
and of course adds so much to the cost of production. On 
the other hand, the credit of government, while it would 
.greatly facilitate its financial operations, would cost nothing, 
or next to nothing, both to it and to the people, and of 
course would add nothing to the cost of production; which 
would give to every branch of industry, agriculture, com- 
merce and manufactures, as far as circulation might extend, 
great advantages, both at home and abroad." 

Subsequently, March, 1838, Mr. Calhoun, in his speech 
on the Independent Treasury bill, said : 

"I now undertake to affirm positively, and without the 
least fear that I can be answered — what heretofore I have 
but suggested— that a paper issued by government, with the 
simple promise to receive it in all dues, leaving its creditors 
to take it, or gold and silver, at its option, would, to the 
extent to which it would circulate, form a perfect paper cir- 
culation, which could not be abused by the government; that 
Tvould be as steady and uniform in value as the metals them- 
selves. I shall not go into the discussion now, but on a 


suitable occasion I shall be able to make good every word I 
have uttered. I will be able to do more — to prove that it is 
within the constitutional power of Congress to use such a 
paper, in the management of its finances, according tb the 
most rigid rule of construing the Constitution; and that those 
at least who think that Congress can authorize the notes of 
private corporations to be received in the public dues are 
estopped from denying its right to receive its own paper." 

The United States Treasury notes, issued prior to the war 
of 1861, had never been made a tender in payment of pri- 
vate debts, nor had they been issued in a suitable form to use 
as a circulating medium of exchange. But when the Re- 
bellion broke out in 1861, the necessity for an increased 
amount of money became imperative, and it became neces- 
sary to issue public notes better adapted to the wants of the 
times. The banks of New York, Boston, and Philadelphia, 
soon after the war began, agreed to lend the Federal Gov- 
ernment $150,000,000. After the loan had been negotiated, 
the Secretary of the Treasury, unexpectedly to the banks, 
required it to be paid in specie instead of bank notes, and 
the result was that the banks throughout the country were 
obliged to suspend specie payments. 

The government stood in need of soldiers, ships, gun- 
boats, cannon, guns, ammunition, commissary stores, quarter- 
master stores, transportation, etc. The people at large were 
obliged to supply the wants of the government, and fortu- 
nately possessed both the ability and willingness to do so, but 
it was impracticable to accomplish the ends desired except 
through the instrumentality of a medium of exchange — 
money. Congress, by virtue of the sovereign prerogative 
inherent in the people, and as their representative duly 
authorized, by the Constitution, enacted a law authorizing 
and directing the Treasury Department oi tJ^YfeflLercX^Qtoi- 


eminent to issue public notes which should be a legal tender 
for debts, both public and private. As they were issued by 
the people in their collective capacity, and represented the 
property and products of the nation, it was eminently just 
and proper that they should declare that what they did in 
their collective capacity should be binding upon them indi- 
vidually. In fact, in no other way could the people all have 
been put upon the same platform with respect to the wants 
of the government, in the exigency which then existed, than 
by declaring their public notes a legal tender in payment of 
debts. These notes, as we have said, represented the prop- 
erty and products of the nation, and by virtue of their legal 
tender property they naturally and necessarily conformed to 
the unit and standard of value of the country. They there- 
fore possessed the power to measure and exchange, as well 
as to represent value, and consequently possessed all the 
attributes of money — in a word were money, in every sense 
of the term; and the American people found themselves, 
unexpectedly, it is true, in the enjoyment (to use the language 
of President Grant) "of the best currency that was ever 
devised." - 

When public notes were issued, the people in a collective 
capacity in effect said to those who were able to supply the 
wants of the government: "Give the government all the 
guns, ships, food, transportation, etc., that is required, and 
the rest of the people will make good to you whatever 
amount you may contribute over and above your share out 
of any other property or products which they may possess 
that you need or desire." As it was a matter of compulsion 
on the part of the people to supply the wants of the govern- 
ment, it was an act of supreme folly in them to encumber 
their circulating medium with interest directly or indirectly^ 
as was done, which can only be compared to & xaasi ^»jva^L 


somebody else interest for the privilege of using his own 
money. It simply made it the prey of speculators and 
money dealers, greatly to the disadvantage of the nation. 
That it was unnecessary appears from the fact that green- 
backs to the amount of hundreds of millions of dollars cir- 
culated in the channels of trade and performed all the uses 
of money, as effectively as gold or silver could have done, for 
more than a year before the United States bonds, bearing six 
per cent, interest in gold, with which they were interchange- 
able, were issued, and continued to do so after their inter- 
changeability was taken away by act of Congress. Mr. 
Spaulding, chairman of the sub-committee of Ways and 
Means of the House of Representatives, in a speech on Jan- 
uary 12, 1863, said: "The Secretary has paid out nearly 
$250,000,000 legal tender notes, being all that he was author- 
ized to issue; and notwithstanding he has had authority for 
the last ten months to sell $500,000,000 of five-twenty six 
per cent, bonds at the market price, he has only disposed of 
about $25,000,000, and has still authority to sell $475,000,000 
at the market price, and take his pay for them in legal tender 
notes. One of the reasons why more of these bonds have 
not been disposed of is, that there has "been no redundancy 
of currency, and it has been difficult for the Secretary of 
the Treasury to get legal tender notes on a sale of the bonds 
and seven-three-tenths notes that he has already negotiated." 
In other words, the people needed greenbacks far worse than 
anything else, and could not spare them to invest in five- 
twenty bonds, which have since been paid both principal and 
interest in gold. At this time gold ranged from 134 to 160. 
Had Congress not yielded to the demands of the money 
power, but passed the legal tender act as originally framed 
and offered in the House of Representatives, that is to say, 
had made the greenback a full legal tender (receivable for 


duties on imports as well as other public dues), and not made 
the interest on the bonds, with which it was intended to be 
interchangeable, payable in gold; and resorted to a judicious 
system of taxation, using the bonds only to sustain the 
greenback in case its credit ever f altered j by receiving it 
alone -as specie for bonds, there is every reason to believe, 
from the -experience of the country at that time and since, 
that the war could have been carried through successfully 
without incurring but a fraction of the debt now owed by 
the Federal Government, and that the debt, whatever it 
might be, would be held mostly at home instead of abroad. 
But no sooner had the legal tender act made its appearance in 
Congress than the money power was up in arms against its 
passage. Delegations of bankers from New York, Boston 
and Philadelphia hurried to Washington; and formally 
organizing, by selecting one of their number chairman, they 
summoned the Finance Committee of the Senate, the Com- 
mittee of Ways and 1 Means of the House, and the Secretary 
ol the Treasury into: their presence. : In the! end the money 
power, although it did not succeed in preventing the passage 
of a 1 legal tender act, secured a complete triumph. The 
interest of the bonds was made payable in gold in order 
to create a demand for gold, and then duties on 
imports were made payable in gold in order to get 'the 
gold to pay the interest on bonds. A premium on gold 
was thus established, and the public notes of the gov- 
ernment were dishonored by the government itself; and, as 
we have seen, the premium on gold was run up to 160 before 
ever the gold interest bearing bonds of the government 
to ere issued. A National Banking law was also enacted to 
enable the money power to regain control of the monetary 
affairs of the nation. This was the beginning of the most 
stupendous robbery, boldly and openly planned and remorse- 



lessly executed, to be found in the annals of any nation^pf 
either ancient or modern times, the details of which will. be 
accurately; set forth in a coining ,chapter (Chapter yi^.anji 
the end is not yet. 

The legal, tender acts passed during the war; not only 
received the sanction of every department of the govern- 
ment, but m$t with the universal approbation of the wealth 
producing classes of the nation. Their validity and consti- 
tutionality, which were of course contested by the money 
power, have been affirmed by the Supreme Court of the 
United States, and by the Supreme Court of fifteen ; States, 
and only in one instance has a State Court failed to endorse 
their constitutionality. The Constitution of the United 
States does not in express terms confer upon Congress the 
authority to make anything, a tender in. payment Of debts* 
the word tender being no where mentioned in that instru- 
ment, ex9ept in the clause prohibiting States from making 
anything butgold and silver a tender, but the right to do so 
is so clearly an indent of the general powers of Congress; 
over the currency of the, country, that it;has never hesitated 
to enact such laws, upon thp subject as the interests 6f the 
natipn required. ; The right to declare by law what shall be 
a tender in payment of debts has thi|& been exercised by 
Congress in twenty-f pur statutes passed during the adminis- 
trations of Washington, Jefferson, Madison, Monroe, faction, 
Tyler, Pc|lk, ^illmore. Pierce, Lincoln and Johnson. 

But driven put of the Supreme Court, the money power is 
now busy striving to inculcate the doctrine that Congress 
could only make public notes a tender in payment of private 
debts in time of war. A distinguished lawyer,* who has 
made himself conspicuous of late in his efforts to mislead 
the public upon this subject, says: "That the only currency 

•Bon. Beverdy Johnson. 


known to the Constitution is gold and silver, or paper con- 
vertible into it on demand," and gives it as his opinion that 
the Supreme Court did nQt intend to go so far, in the legal 
tender cases decided at the December term, 1870, as to 
decide that such an act would be constitutional if passed 
in time of peace. As the framers of the Constitution, as 
has already been explained, refused to authorize Congress 
"to emit bills of credit," (paper convertible into gold or 
silver on demand) it is evident that this distinguished advo- 
cate of banks of issue, in asserting that such a currency is 
"known to the Constitution," has allowed his zeal to outrun 
his judgment, and he is no less in error in regard to the 
opinion of the Supreme Court. Mr. Justice Bradley, one of 
the Judges of the Supreme Court, who read an opinion in 
the cases referred to, says: 

" Another ground of the power to issue Treasury notes or 
bills is the necessity of providing a proper currency for the 
country, and especially of providing for the failure or dis- 
appearance of the ordinary currency in times of financial 
pressure and threatened collapse of commercial credit. 
Currency is a national necessity. The operations of the gov-» 
ernment, as well as private transactions, are wholly depend- 
ent upon it. The State governments are prohibited from 
making money or issuing bills. Uniformity of money was 
one of the objects of the Constitution. The coinage of 
money and regulation of its value is conferred upon the 
General Government exclusively. That government has 
also the power to issue bills. It follows as a matter of 
necessity, as a consequence of these various provisions, that 
it is specially the duty of the General Government to provide 
a national currency. The States cannot do it, except by the 
charter of local banks, and that remedy, if strictly legitimate 
and constitutional, is inadequate, fluctuating, uncertain and. 


insecure, and operates with all the partiality to local interests, 
which it was the veiy object of the Constitution to avoid. 
But regarded as a duty of the General Government, it is 
strictly in accordance with the spirit of the Constitution, as 
well as in line with national necessities." (12 Wallace's 
Reports, 562.) 

The necessities of peace may be as great, though of a dif- 
ferent character, as those of war, as the American people are 
experiencing at the present time. For several years the 
nation has been suffering a daily loss of millions of dollars, 
by reasor of its inability to develop the producing forces of 
the country, as they might be developed under wiser laws. 
Nor need any one indulge the hope that " times will change," 
because there can be no change, except from bad to worse, 
until the cause which has produced the present prostration 
of all forms of productive industry is removed. The repeal 
of the act decreeing specie resumption January 1, 1879, 
which rests as an incubus upon the industries of the country, 
might afford temporary relief , and would certainly avert the 
general bankruptcy, which is inevitable if its provisions are 
earried out, but to place the affairs of the nation on a sure 
foundation something more is required, viz., the extinction of 
banks or issue and the adoption of a monetary system based 
on sound principles. Specie circulation would then come 
naturally as soon as the nation produced a sufficient surplus 
of products to cause its return. This was witnessed in 
France after the late war with Germany. Stimulated by an 
abundance of irredeemable legal tender paper money, the 
French people bent every energy towards producing wealth, 
and in less than three years astonished the world by paying 
off the German indemnity of $1,000,000,000; and specie 
now circulates there side by side at par with irredeemable 
paper money. The immense sum paid by France to Ger- 


many was not paid in actual gold, but in" bills of exchange, 
etc., which represented the proceeds of French industry. It is 
a common error in the United States to suppose that interest 
on the public debt is paid in gold, and that therefore it is neces- 
sary to require duties on imports to be paid in gold. It is a mere 
fiction. The interest of American securities held abroad are 
paid in products, and products do not sell for a farthing more 
or less in foreign markets, on account of being measured 
and exchanged in the United States by greenbacks instead 
of gold. The premium, however, on gold, which exists by 
reason of the law requiring duties on imports to be paid in 
gold, is a disadvantage to all classes, except the bondholder 
and money dealer, which should be remedied. If the green- 
back were made a full legal tender, and sustained by an 
interest-bearing bond with which it was interchangeable, 
there is every reason to believe that the premium on gold 
would almost totally disappear. In 1861, by the acts of July 
17 and August 5, the Treasury Department was authorized to 
issue $50,000,000 in what were commonly known then as de- 
mand notes. An additional issue of $10,000,000 was author- 
ized Feb. 10, 1862. These notes were receivable for all public 
dues, duties on imports included, and were subsequently 
made a legal tender for private debts, and the result was 
that they commanded the same premium over the ordinary 
greenback that gold did, and went up with gold, step by step, 
to the enormous premium of 285. Could any better evidence 
than this be required to prove that a greenback made a full 
legal tender would circulate at par, or nearly so, with gold? 
These " demand notes" were of course very obnoxious to the 
bullionists, because they gave the lie to all their theories 
dbout paper money, and accordingly they were got out of 
the way at the earliest moment possible — all except about 
$75,000, which are probably lost and, if such is the case, 
constitute a gain of that amount to the people at large. 



The nature of money has been so constantly* and generally 
misrepresented that, as we have already suggested, it is not 
surprising that people find it difficult to understand how 
a piece of paper issued by the government represents value. 
This can be fully understood by considering briefly the atti- 
tude of the individual with respect to his duties and obliga- 
tions to the government. In an organized state of society 
the controlling power, or sovereignty, is exercised for the 
common good through the agency of a government. As 
the sovereignty in the United States resides in the people at 
large, the duties of the individual may be said to be self- 
imposed. The powers with which the government, whether 
Federal, State, or local, is vested, imply a corresponding duty 
on the part of the individual. It is the duty of the Federal 
Government to provide for the common defense and general 
welfare. In time of peace it imposes taxes to defray the 
expenses of government and discharge its obligatidns; and 
in time of war it can demand the personal services of the 
individual. Thus the entire wealth 6f the nation is held 
subject to the needs of the State. Private pr6perty is taken 
daily, no matter how much it may be endeared to the indi- 
vidual by association, for public uses, as in the case of roads, 
streets, etc., and the tax warrant takes precedence over all 
other liens, without respect priority. 

The expenses of the government are paid out of the earn- 
ings of the people at large. When the government needs 
money it has to look to the people for it; taxes are laid 
and the people are obliged to respond. But if there is 
no money in the country, people are unable, not only to carry 
on private transactions, but to supply the necessities of the 
jrovernment. They may possess property and products in 


abundance, but they can not be made available for the uses 
of the government, except through the instrumentality of a 
medium of exchange, and it is necessary, therefore, that a 
medium of exchange be devised. The government might 
borrow gold or silver, or the credit of corporations in the 
shape of bank notes, by paying interest; but why should the 
people be compelled to pay interest for the use of a com- 
modity like gold, when they have abundance of other 
commodities at the service of the government, which only 
require a medium of exchange to be made available, 6r for 
'the credit of corporations, when their own credit id much 
better than that' of any corporation? Through the ageiicy 
of the Federal Government, upon whom, under the Constitu- 
tion, that duty de'Volves exclusively, the people in a collective 
capacity can issue their own notes, which cover the entire 
property and wealth of the nation, including gold, Silver — 
everything, in a word, that can be reached by a tax warrant. 
These notes represent property to the amount inscribed on 
their face, which the government was entitled to demand in 
the way of taxes at the time the notes were issued. It was 
in this sense that Calhoun declared that they were in reality 
"promises to receive," and bore no analogy to noteis prom- 
ising payment in money. As between citizen and govern- 
ment they are the same as money ? and, if the individual ra 
turn is not obliged to receive them atf the representative t>t 
property to the amount inscribed on their face, it is tanta- 
mount to the people repudiating individually what they have 
done collectively. It is, therefore, but a matter of simple 
justice and equity that Congress should declare the public 
notes of the government a legal' tender. It is also a matter 
of great advantage to the people, for when a public note 
is made a legal tender it acquires all the functions an^ 
serves all the purposes of money. 1 The public note left 


not, then, one thing to ; the government and , another to the 
people, but its value becomes fixed and certain, #s determined 
by law. A dollar legal tender note of thej goyernnient then 
represents a ..dollar's worth of property-^-neitherj more ; nor 
less. It consequently corresponds to the-unit o£;yalue fixed 
in the minds of the people by usage and.e^uc^on, an4 is a 
measure of value. It has, therefore, » representative value 
and the power to measure an< i exchange property; ; in, other 
words, all the attributes or functions of. money. , As it rep^ 
resents a .dollar's worth of property, it, cannot f yary as a 
standard or measure of value, except as tfteuriitpf value may 
vary in the minds of the people. This is not the ca^e with 
money possessing intrinsic value, becau^ its power as 
money then depends chiefly upon the yaju^pf the material 
of which it is made, and as that, will fluctuate according to 
the laws of supply and demand, it; cannot be used, as a fixed 
measure of value r Thus gold., fluctuates ,in value, and is 
itself, whether i$ coin or bullion* a thing ^to be measured^ 
Thpt a measure of .value must possess intrinsic value is a 
dogma of the schools, v which men of science, out of a desire to 
be consistent perhaps, adhere to — notwithstanding, the faca* 
that they are fui'nished with abundant proof to the contrary 
in almpst every transaction of daily l^fe — with as much per- 
tinacity* as the men pi science and the churchmen • of the^ 
17th c^ntuxy. adhered to the. opinion that it was the sun that 
revolvecj. arounc^the earth and not the, earth around the sun.. 
When the Femoral;. Government pays out a dollar legaL 
tender note for value received, it will be a^ked ho\*r, wh$n. 
and where is the holder to obtain the property pr y^lue 
which it represents? The Federal Go verninent. could say* 
this note represents property^ which the government, is, now 
entitled to receiyp, and a tax warrant can prodnqe the- 
property any moment, if it ,tak£s the, last dollar's worth. 


in the country; but the government is constantly receiving 
property, or its equivalent, in the shape of revenue, and there 
is no necessity to make a special levy of taxes to pay this 
particular dollar; nor is there any necessity to fix a time for 
its redemption in property. Being a legal tender, every 
individual in the nation will take it at the value inscribed on 
its face, and in the natural course of events it will redeem 
itself, in one sense, by returning to the Federal Treasury in 

the form of taxes or revenue. It was for this reason that,. 

• « • • • ■ . , . .. 

in the case of North Carolina, mentioned by Mr. Calhoun, 
several hundredthousand dollars of legal tender paper money, 
issued by the government of that State, circulated for years at 
par with gold and silver, with no other advantage than being 
received in the revenue of the State, which was less than, 
one hundred thousand dollars per' annum. 

The wjealth of the United States is estimated at over 
$40,0Q0,000,000. The annual expenditures of the Federal 
Government amount to about $300,000,000, requiring a corres- 
ponding revenue. The amount of public notes, baseq^pn 
sound principles, which the Federal Government, backed by 
$40,000,000,000 of property, with a revenue of $3O0,000,0OG 
a year, could safely issue, is a matter of opinion, arrived at. 
in much the same way that the credit of an individual is measr 
ured./ The amount of money required by a nation is just 
what can be used safely and profitably in carrying on its 
affairs, public and private. It will vaiy in different years 
and at different seasons of the same year, through the 
operation of causes existing in various parts of the world. 
Hence the necessity of sustaining the legal tender note of 
the government with a bond, with which it may be inter- 
changeable in times of redundancy; and it might be possible, 
if the government were out of debt, to accomplish the same 
end by increasing or diminishing the rates of taxation as. 
occasion required. 


Note. — On page 52 we stated that "the foundation of the 
Treasury note (greenback) is the same as that of a United 
States bond, which secures the payment and sustains the 
value of the bank note, and it, therefore, possesses the 
highest and best security that a medium of exchange can 
possibly have." Professor Bonamy Price, although he 
seems to think that notes issued by a government are not 
as good as bank notes, because "there are no means for 
oompelling a government to pay money, if it choses to say 
that it has none," (Currency and Banking, page 45) never- 
theless, is of the opinion that no guarantee for the solvency 
of the notes of a bank is so natural and safe as a deposit of 
government securities. He says: "Bank notes circulate 
largely among the poor and uneducated, and when the bank 
breaks, the loss is severe and distressing. These facts supply 
ample warrant to the State to require of issuing bankers, not 
only that they should pay their debts to the utmost extent of 
their fortunes, as any other person, but further that they 
■shall lodge such security as shall always provide for the 
payment of the debt acknowledged on the note. A guaran- 
tee for the solvency of the notes may be obtained in various 
ways, but none seems so natural and so simple as a deposit 
of government securities with some officer of the State. It 
combines two advantages — safety, and a natural and fitting 
profit for the banker from the interest accruing on the bonds 
or stock. The old Exchequer bill of the English government 
was an excellent specimen of this kind of security. It could 
always be paid in for taxes, bore a daily interest, and was 
thoroughly trusted, and with reason, by the whole commu- 
nity." (Currency and Banking, page 53.) It is a bad cause 
that obliges a professor of political economy to blow hot 
and cold in this manner. 




Banking had its origin at an early period in the history of 
commerce, and a banker originally was simply a dealer in 
money. In the New Testament mention is made of a bank 
in which money could be placed at interest, and only 
recently the tablets of an ancient banker, with their inscrip- 
tions uneffaced, were brought to light by the explorations 
now being made amongst the ruins of Italy. In England, 
until as late as the beginning of the 18th century, the busi- 
ness of banking was carried on by goldsmiths. Banking, 
however, as it is now conducted, is an institution of modern 
growth. The check, certificate and bill of exchange have 
come to perform an important part in the work of exchange. 
-It is not the intention to enter into a consideration of the 
principles and details of banking further than is necessary , 
to a proper understanding of the question of money, with 
which it is intimately connected. Money, as has been 
explained, is an agency of trade, and, in an accumulated form 
as capital, an instrument of production. The first thought 
of the .possessor of money is safety and the next profit. 
Money cannot accumulate value of itself, and consequently 
has to be put to use in order to bring its owner a return. 
When hoarded it is not only useless to the owner, but 
society is deprived of the advantage of an important agency 
of exchange and of production. It is, therefore, a matter of 
importance to society, as well as to the individual, that 
money should be afforded every opportunity to occupy the 
channels of trade and perform the uses for which it is 


designed. The interests of society, as we have seen, are 
best promoted by a division of labor. One class is devoted 
to agriculture, another to manufactures, trade, education, etc., 
etc., and each class is agaia subdivided into innumerable 
forms of industry. In this way it happens that a class has 
grown up which is specially engaged in the collection, 
custody and investment of money, and in dealing in debts 
and credits based on money. The banker offers reasonable 
safety and repayment on demand, or moderate interest, and 
in turn lends the money for the purposes of trade. The 
offices of a bank are to receive money on deposit subject to 
order, to collect money, to invest money, to lend money, and 
to buy and sell securities and exchange. The check and 
bill of exchange are invaluable aids to business and com- 
merce, and for many purposes are preferable to money. 
The great facilities which a bank affords for the transaction 
of business, as well as its ability to promote the circulation 
of money and foster enterprise, render it an agency of trade, 
second in importance and usefulness only to money itself. 
Like all other human institutions, banking is of course liable 
to abuses, but when legitimately and properly conducted there 
is no other institution so closely connected with the well 
being of every individual, or one which is capable of ren- 
dering so much service to society. It is, therefore, impor- 
tant that banking, like money, should be based upon sound 
principles. Banking legitimately conducted is purely a 
matter of private enterprise, as much so as dealing in grain 
or lumber, and the relation, whioh the banker sustains to 
the community, differs in no respect from that of an individ- 
ual, following any other pursuit or profession. Banking 
should, therefore,- be free, and subject only to general 
Jaws, such as the laws under which partnerships are 
conducted. The generally recognized and ac^o^Aftd^i 


importance of banks, however, have led individuals to seek 
and governments to bestow upon them powers and privi- 
leges, such as are bestowed upon the vocation of no other 
class of society. We refer more particularly to the power, 
with which banks are clothed by law, of issuing promissory 
notes, nominally payable on demand, to circulate as money. 
There is no reason why bankers should be invested with 
this authority any more than any other class of society. 
The temporary relief which, by reason of this privilege, 
they are enabled to afford to individuals, and from which 
the community derives a benefit, has blinded society to the 
far greater evils which flow from the custom. A distin- 
guished writer* upon the subject of money and finance, in 
speaking of*this feature of banking, says: "The bad practice 
which originated with the Bank of England was an agree- 
ment to pay gold on demand for its inscriptions of credit. 
This was to undertake to do an impossibility. The general 
debts of a bank are redeemed by its general resources, and 
these consist mostly of loans and discounts which mature in 
the future. A more flagrant violation of sound banking was 
never conceived. It has repeatedly involved the banks of 
the United States in fatal embarrassments, and brought 
ruin upon thousands of merchants who were otherwise able 
to pay their debts and retain a handsome surplus." It is 
not alone the excessive and unfair profits which this system 
(banks of issue) enables those engaged in it to reap from 
the public, but the periodical derangement of business and 
trade, so fruitful of disaster, which it leads to, that renders 
it so obnoxious. Jefferson, who never failed to warn his 
countrymen against the evils of the system, in a letter upon 
the subject in 1813, said: "But it will be asked, 'Are we to 
liave no banks? Are merchants and others to be deprived 

V. 8, Gibbons, in Johnson's Universal Cyc\op»&V». 


of the resource of short accommodations found so conven- 
ient?' I answer, let us have banks; but let them be such as 
are alone to be found in any country on earth, except Great 
Britain. * * No one has a natural right to the trade of 
a money-lender but he who has the • money to lend. Let 
those, then, among us who have a moneyed capital, and who 
prefer employing it in loans rather than otherwise, set up 
banks, and give cash, or national bills (United States 
Treasury notes) for the notes they discount. It is from 
Great Britain we copy the idea of giving paper in exchange 
for discounted bills; and while we have derived from that 
country some good principles of government and legislation, 
we unfortunately run into the most servile imitation of all; 
her practices, ruinous as they are to her, and with the gulf 
yawning before us into which these practices are precipitar 
ting her." 

The dependence of the government upon a medium, of 
exchange for its revenues has contributed largely to the 
abuses of the banking system, to which we refer, but since 
the Treasury note, made a legal tender, has been found to 
answer all the purposes of money, much better than gold, 
silver, or the bank note, there is no longer any reason for 
tolerating banks of issue. That this theory in substantia 
finds able advocates, even in England, is manifest from the 
following extract from an article in the Westminster 
JZeview of October, 18 J3, entitled, "The Mint and the Bank 
of England:" 

"In breaking this monopoly of the bank, we should be 
taking great strides toward the attainment of that ideal sys- 
tem of currency which Sir Robert Peel must have had in 
heart when he passed his currency laws; a system under 
which the State shall be the sole fountain of issue; nnder 
which no money shall circulate on credit, ox i£ it doe^ ahall 


circulate on the credit of the State, all bank notes, as well as 
coins, bearing the image and superscription of the head of 
the State, and under which all profits upon the issue of 
money shall form part of the iniperial/revenue. * * The 
power of issue, now exercised by the Bank of England, 
and by the English, Irish and Scotch banks, [all private 
corporations,] is a relic of feudalism. * * j^ e 

manufacture of coin has been suppressed long ago, but 
the manufacture of paper money still remains, and the profits 
of this manufacture are allowed to remain in private hands, 
the State taking upon itself the manufacture of the only part 
of the currency upon which there is, or can be, a loss. It is 
high time this state of things ceased; that all rights of issue 
were gathered into the hands of the State; that the debt of 
the Bank of England was paid off; that all notes but those 
of the State were suppressed; that the powers of issue, now 
exercised by the banks, were vested in the royal mint, * * 
and that the profits upon paper currency were claimed by 
the State, and appropriated * * * to the reduction 
of taxation." 

Public banks in the United States are conducted solely 
for private gain, and are free from governmental connection 
or control. They are, however, as we have already observed* 
invested with extraordinary privileges and franchises of & 
public nature, intended for the public good. While they 
are eminently successful in enabling their corporators and 
stockholders to secure their own ends, they are far from 
being beneficial to the public. The languishing condition 
of the country at the present time demands that the right to 
make a circulating medium of exchange shall no longer be 
suffered to remain in private hands, but shall be restored to 
the nation, to whom it belongs, and by whom alone it can 
"be exercised in a spirit of equal and exact yv&\kfcfc to *X^ 



Important lessons can be learned from the teachings 
of experience. A brief glance at the banks of the old world 
will be found useful at the present time, as well as interest- 
ing. The first bank of which history gives an authentic 
account is the Bank of Venice, established in the year 1171, 
and which, strange to say, furnishes an example of success 
that has never been equaled. 


The Bank of Venice was established under peculiar 
circumstances. The Venetian government, under the Duke 
Vitale Michel II,, was engaged in a \?ar with the Grecian 
Emperor, on account of an outrage perpetrated in his empire 
upon Venetian merchants, and also in a war with the 
Emperor of the West. Standing greatly in need of 
means, the Venetian government resorted to a forced loan, 
and required its wealthiest citizens to contribute to the 
support of the government according, to their ability. A 
chamber of loans was organized, of which the creditors were 
constituted the managers, books were opened and an inscrip- 
tion of credit entered for the amount paid in by each, 
on which the State agreed to pay interest at the rate 
of four per cent, a year. These inscriptions of credit were 
made transferable in whole or in part on the books of the 
bank. The government entered into no obligation to repay 
the money, but, to quote from Colwell, "reimbursement of 
the loan ceased to be regarded as either necessary or desi- 


Table. Every creditor was reimbursed when he transferred 
his claim on the books of the bank. From being convenient 
and valuable as an investment readily obtained, and as 
readily disposed of, it became, by a natural process, a 
medium of payment in transactions of commerce. That 
fund, which was desirable to all seeking investment, would 
l>e willingly, in many instances, accepted in payment of 
debts already existing, or for goods just purchased. There 
is good reason to believe that this fund was largely used in 
this way for centuries before the final arrangements were 
made, of which our accounts are more clear. * * There 
is no, question, although we have not the details, that the 
government had found it perfectly easy to enlarge the 
amount of the original loan or sto ck of the bank, as the 
demand for its funds generally excee ded the supply. All 
money depo sited for the purpose of obtaining a credit in 
bank was accounted an addition to the original loan, and as 
isUch taken into the public treasury as money lent the State. 
Every such investment increased the stock of the bank, and 
replenished the treasury of the republic. If individuals 
could make purchases and pay debts by transfers in bank, 
the public treasury could well afford to receive, in payment 
of its dues, credits in bank, as that would only be equivalent 
to taking up its own obligations. Thus, the more these 
credits were employed, the more the demand for them 
increased, the more rapidly money flowed into the treasury, 
and the more readily the government could afford to receive 
payment of its revenues in the funds of the bank." 

The history of the Bank of Venice is presented by Mr. 
Col well, in his able work entitled, "The Ways and Means 
of P&yment," in such a clear light, that we can do no better 
than to continue to quote from him at length as follows: 

w The way was opened, by the experience of two centuries 


and a half, for the next chief characteristic of the Bank of 
Venice. In the year 1423, in the administration of the 
Doge Thomas Moncenigo^ it was decreed that all bills of 
exchange payable in Venice, whether domestic or foreign, 
should be paid, unless otherwise stipulated and so expressed, 
in the bank; and that all payments in gross, or in wholesale 
transactions, should be effected also in bank. This at once 
brought the mass of the payments of that great commercial 
city to the bank. Whatever irregularities, and whatever 
confusion had prevailed, this introduced a uniform and, from 
long familiarity with the bank, an intelligible system. The 
endless diversity, and bad condition of the coins circulating 
in Venice were a sufficient recommendation of the new 
regulation to all who had not very special reasons, indeed, 
for disliking it. This measure at once created a great 
additional demand for the funds of the bank, and brought 
large sums into the public coffers. The government, how- 
ever, no longer paid interest for the sums received from the 
bank. The funds obtained in this way were brought to the 
bank for the payment of bills of exchange, and were paid in 
for that purpose, and not with a view to interest. The rapid 
succession of payments occurring at a point where all the 
payments of Venetian commerce were accomplished, made 
the intervals during which the funds remained in the hands 
of any one merchant too short to make him solicitous about 
interest on balances or deposits. As all payments of the 
kind above designated were, by law, to be made in bank,, 
unless otherwise agreed, and as that mode of payment was 
far more convenient, it became almost the exclusive usage 
of trade. AH who had engagements to meet, found them, 
in the bank: of course, all such provided the bank funds 
necessary to meet them, or carried to the bank the amount 
of coins requisite for the purpose. Tne government con- 


turned to take all money paid in as a consideration for 
allowing an inscription on the books of the bank to the 
credit of the depositor. The sums which thus flowed through 
the bank into the treasury would, with the previous bank 
funds, make up the quantity needful for the convenient 
discharge of the commercial payments of Venice. As this 
amount fluctuated from year to year, and during each year, 
with the course of commerce, a very effective mode of 
accommodating the supply of bank funds to the exigency of 
the demand came obviously into use. When the payments 1 
in bank were heavy, and the bank funds in great demand, 
money flowed freely into bank, and the credits were propoiv 
tionably increased. When an occasional demand for the 
prepious metals arose, the holders of bank funds could r 
readily dispose of them at a slight reduction for coins. The 
purchasers of bank funds were sure of meeting soon a 
demand for them; for the demand for a medium in which 
tfye ever-recurring payments of debts were made so much 
exceeded in intensity the occasional demand for specie for 
exportation, or any other use, that during the whole existence 
of the .bank, with very slight exception, the bank fund was 
a$ $ large premium over coins, so large that it was finally 
fixed by law at 20 per cent" » 

.-•The republic, could well afford to maintain a liberal 
policy towards an institution so important, both as a fiscal, 
and commercial agent. That the inhabitants of Venice w6f e 
satisfied, we cannot doubt, as not an objection was ever : 
made to the bank, at least none is extant; neither book, nor 
speech, nor pamphlet, have we found, in which any merchant 
or dweller in Venice ever put forth any condemnation of 
its theory, or its practice. There was no hesitation in 
carrying money to the bank, so long as it was not doubted 
that the bank funds would purchase specie without a loss, 


whenever it might be needed; and the uniform premium of 
fcank funds settled that point. Under such a system, the 
•regular payments of trade would proceed with a rapidity 
and economy previously unknown, so far as the history of 
commerce informs us." * * 

"It is worthy of remark, that this very efficient mode of 
adjustment discovered and used so largely at this early 
geriod in the history of commerce, was not dependent for 
ija efficacy on the guarantee of the republic. That guarantee 
Sprung out of the mode in which the bank originated: this 
c.ftnvenient method of liquidation sprung from the use of 
this new substitute for money." 

"The facility of payment furnished by the bank,. which 
made it the admiration of Europe, honorable at once to the 
•government and merchants of Venice, and a support to the 
pride and ppwer of its people, consisted in substituting, as a 
medium of payment, the debt of the republic for current 
<#>in. * * *. The government took the coins one 
t*me f or all, giving therefor a corresponding credit m the 
bank; and allowed the depositor or lender to transfer his 
<ilayai upon the republic in payment of his debt, in place- of 
t*jaa#ferri#g over the coin in-each payment. Whatever mea* 
<5an employ in payment of debts,: they will be willing te 
receive in payment, and this independent of any legal com- 

{ *' Experience soon evinced the power and convenience of 
t^ifl mode of payment. These- bank credits were divisible to 
■every desirable degree, and they could be transferred : with 
^ readiness, speed arid safety, beyond all comparison, 
superior to any mode of paying in coin. The same sum or 
credit might be kept in such rapid circulation, as to effect 
an amount of payments, in a specified time, far beyond any 
ppppible movement of coin. This rapidity became a great 


economy, for a much less sum of credits was made to effect 
a given amount of payments with far greater speed than 
could have been attained with coin. But this economy 
resulting from an increased speed and power of circulation 
was still more important, arising from the fact that the coins 
which were deposited as the basis of the credit were very 
soon again restored to the usual channels of circulation by 
the, payments of government. Thus the coin was not with- 
drawn from its proper functions, and the credits remained a 
perpetual fund, to be employed in large payments. This 
system of payments was so well adapted to the exigencies of 
commerce, that it was maintained in full vigor, in the great 
commercial city of Venice, for almost four hundred years. 
It was an institution or device of the credit system, for fey- 
its aid payments were ejected, and that to a vast amount 
annually, without any use of coins or bullion. It only 
perished, when the city itself fell, at the conquest of Itaty 
by Napoleon; but the conqueror carried off no coin, no penny 
of prey. The credits of the bank were crushed under the 
rude touch of an invading foe. They were lost to the 
proprietor, but no equivalent passed into the hands of the 
destroyers.. If the holders of these credits suffered, the 
invaders were not enriched. In assuming the sovereignty 
of .Venice, the conqueror assumed the right and duty of 
making good these bank, credits." 

The Venetian government was careful at all times to 
provide for the wants of the*; public, In course of time it 
became necessary to establish in the bank a department for 
the custody of coin or bullion, which the owner might deBire 
to use. Deposits of this kind were subject to the order of 
the owner, who could reclaim them at pleasure, or transfer 
them in the same manner as bank .credits. This feature of 
th^ bank prove eminently useful to the. public, but did not 


lead to any diminution in the funds of the bank itself, as the 
demand for inscriptions of credit was always greater than 
the supply. The original capital of the bank was 2,000,000 
ducats, but it rose to about 5,000,000 in the 18th century, 
and to over 14,000,000 (about $16,000,000) at the close of its 
long and remarkable career. 

The history of the bank of Venice establishes several 
important facts of deep significance to the American people 
at the present time. The inscriptions of credit of the bank 
were simply evidences of indebtedness of the governinent, 
bearing no interest, which constituted a medium of exchange. 
The law which required all bills of exchange payable in 
•Venice to be paid at the banW, unless otherwise expressly 
'Stipulated, was apparently an arbitrary requirement, but it 
Vorked no injustice; on the contrary it increased the 
strength of the bank inscriptions, and resulted in greatly 
promoting the' facilities of commerce and in making Venice 
the commercial metropolis of the world for centuries. The 
evidences of indebtedness, which the government in the 
first instance required its creditors to take, it in effect made 
'a legal tender for private debts, which was no more than 
just; The large premium which these inscriptions bore wsts 
"riot- flue to any act of the government, but td the value 
attached to them by the public. It rose to as high as 80 
per cent., when the goverment found it necessary to impose 
a limitation, which was fixed at 20 per cent. This premium 
on inscriptions of credit in a bank, which were not redeem- 
able or payable in gold, (mere " rag money" they might be 
istyled) which existed for centuries, is inexplicable on any 
theory which : can be advanced by the bullionists. The 
Venetians were enabled, by the use of their irredeemable 
inscrijytions of credit, to achieve a degree of power and 
prosperity, which thdjr retained for centuries, that proved a 


constant source of envy and wonder to the rest of the world; 
and during the whole time they never once suffered from 
^commercial crashes or money panics, such as are experienced 
in England and the United States every six to ten years. 
It has been a matter of surprise that other nations witnessing 
the prosperity of Venice did not imitate her example, but 
that is not half so strange as the fact that the people of the 
United States, having experienced the great advantages of 
even partial legal tender paper money, should blindly cling 
to the rotten and disastrous specie basis system of banks of 


The Bank of Genoa was established early in the 13th 
century, and, like the Bank of Venice, had its origin in the 
necessities of the State. The loans upon which it was based 
were not, however, forced, but were the spontaneous offerings 
»of the people. The creditors of the bank became a very 
powerful body. In the course of time the bank adopted 
various new devices, and its system became greatly compli- 
cated. According to Colwell, the Bank of Genoa was the 
first to originate the bank note, which has since played so 
important a part in the affairs of the world. It met with the 
same fate that befell the Bank of Venice at the time of the 
French invasion under Napoleon. 


The Bank of Amsterdam was established in 1609 on the 
theory that deposits once made could never be withdrawn. 
For nearly two centuries it enjoyed great credit, and con- 
tributed largely to the prosperity of Amsterdam. Coin and 
bullion were also received on special deposit, and could be 
reclaimed by the owner at pleasure. The fact that deposits 
once made could not be withdrawn, resulted in the bank 7 


accumulating a vast amount of money, but how much was 
kept a secret. When the supply of credits based on deposits 
exceeded the demand, the excess was bought up by the 
bank, through brokers, at a premium of four per cent. In 
1790 it was discovered that, during the preceding fifty years, 
large loans had been secretly made to the East India Com- 
pany, the Provinces of Holland and the city of Amsterdam, 
and that there was but little treasure left in the bank. It 
consequently failed through the unfaithfulness of its officers. 


The Bank of Hamburg was established in 1619 on the 
model of the Bank of Amsterdam. It is still in existence,, 
and is a useful and flourishing institution. 


The next great bank established in the course of time was 
the Bank of England, an institution which has exercised,, 
from its organization, a powerful influence in the commercial 
and financial affairs of the world. Its charter was obtained 
in 1694, and it went into operation January 1, 1695. Its 
charter conferred on it full authority to borrow or receive- 
money and give security for the same under seal, buy or sell 
btdlion, gold or silver, etc., etc. No special power was 
granted to issue bank notes, but the authority to do so was 
assumed as an incident to the general powers with which 
the bank was invested. It was, in brief, chartered as a bank 
of deposit, loan, discount, issue and circulation. The whole 
amount of the capital stock originally subscribed, «£l,200,00Q v 
was handed over to the government as a special loan, the 
interest on which was secured by certain taxes designated 
for that purpose, and the sum of $20,000 a year was allowed 
by the government to the bank for the management of 
the loan. The capital stock of th e bank is now out 


£14,000,000, and the accumulated profits about £3,000,000 
— in all about $88,000,000. It can issue bank notes to the 
amount of $70,000,0000, not under £5 ($25) in denomination, 
against that amount of government securities, and also to 
the amount of gold and silver held in its vaults for their 

At an early period in the career of the bank, it took a 
bold and dangerous step, which introduced a new feature in 
banking. By its charter the bank was authorized to deal in 
bills of exchange and promissory notes, and, as has been 
mentioned, it also assumed the right to issue its own notes. 
Bills of exchange and promissory notes, then as now, entered 
largely into all commercial transactions, and usually had 
some time to run before they were payable. In order to 
acquire favor with the public and increase its business, the 
bank adopted the custom of giving its own notes, payable on 
demand, for discounted paper, payable in the future. This 
custom was adopted on the theory that the small bills of the 
bank would pass into circulation, like money, and be dispersed 
throughout the kingdom; that they would become indispen- 
sable in business transactions, which would be greatly 
increased by the number in circulation, and that consequently 
they would not be returned suddenly, or in large amounts to 
the bank for redemption. 

The unsoundness of the principles of banking, adopted 
about this time by the Bank of England, and upon which 
the specie basis system of banking has been built up, is fully 
demonstrated by Colwell, from whom we again quote as 
follows: " Upon such considerations, the bank decided to 
issue notes payable to bearer on demand, in exchange for 
individual paper payable at a future day. The banjt thus 
undertook to do an impossibility, in the hope that it would 
m>t be called upon to redeem the promise or make . tk$ 


attempt. What the bank could do was to give its own notes, 
of convenient denominations for circulation in exchange for 
individual paper and payable at the same time; and in doing 
this alone, the bank could have rendered a great service to 
the public with small risk. The bank had not the money, 
and could not, therefore, purchase the paper offered; the 
notes offered by the bank were not money, though a much 
better substitute for money than 4ke notes of indiridttals, 
which could only circulate to a very limited extent as a me- 
dium of payment. The bank issued notes payable to bearer, 
without endorsement, and this certainly added to the facility 
and convenience of their passing rapidly from hand to hand 
as a currency. It departed from sound principles, when it 
made these notes payable on demand in gold or silver; for 
it must be contrary to sound principles to undertake to do 
what cannot be done. The bank notes were nothing more, 
and should not have been held up to the public as anything 
more, than the mere promissory notes of the bank, conven- 
ient in form for circulation among all those who chose to 
take them, not as money, but as promises to pay money. 
The promise should have been only such as the bank could 
perform. Strictly speaking, the bank could only pay in coin 
when it received in coin. It could exact payment for the 
note received of every individual only when the note ma- 
tured and not before. The accommodation between the 
bank and its customers was mutual in this exchange of notes; 
the bank received a profit, and the customer received the 
bank notes, a better medium of payment, one which would 
be received out of bank as well as in it, in payment of debts 
or in making of purchases. But it should never have been 
imagined for a moment, that by this process between the 
bank and its customers they manufactured money. * * 
This advantage, (notes payable on demand,) which the 


Bank of England only offered in the first instance to attract 
business, and to give currency to their notes, has been paid 
for since by the people of England, in a series of pressures, 
revulsions, and currency fluctuations, which have inflicted 
injuries and losses upon the government and people of Great 
Britain, in comparison with which the present national debt 
may be insignificant ******* 

a But the bank was still more daring; it discounted notes 
largely, and carried the amount of the proceeds to the credit 
of the party, as so much money deposited; that is, in the 
same column in which the bank gave its customers credit 
for gold and silver deposits, it gave them credit for the 
amounts of notes and acceptances having months to run before 
maturity, and engaged to pay the amount of these securi- 
ties on demand. It mingled a process of credit with a process 
of cash, in a mode as absurd in theoiy as it was dangerous 
in practice. The men who had given their notes on time 
had provided for a regular progression of payments, accord- 
ing to the movements of business and the demands of don- 
sumption; but the Bank of England virtually abolished the 
contract of deferred payment between the parties, and 
became paymaster on demand of debts not due for months, 
to an immense amount" 

"The bank had no warrant, in principle or practice, for 
this hazardous engagement Its only excuse was the same 
which was given for the issue of bank notes payable on 
demand, without the money, namely, that the bank would 
not be asked to pay for them all at one time. 1 ' 

"We regard this error of the Bank of England as the 
parent of the greater portion of the mischiefs and evils for 
which banks in more modern times are answerable. The 
banks from that day to this have continued to issue notes 
payable on demand, and to grant credits so payable, ia ex- 


ehange for securities payable in from 30 to 120 days. They 
do this, relying wholly on the forbearance of the public, just 
as the Bank of England did at first. Sad experience has 
shown, that there are times when the public is not only not 
forbearing, but when men rush with frantic haste to demand 
of the bank payment of both notes and deposits. .Nearly 
every bank in existence, conducted on this plan, has, at some 
period of its history; felt the power und rashness of the public 
in seasons of commercial panic. The banks lose their power 
and usefulness at the veiy moment when the public most 
needs their assistance. Friends in sunshine, they become 
•enemies in the storm." 

The most notable event in the history of the Bank of 
England was the suspension of specie payments in 1797. 
This was caused by the large advances made by the bank 
to the government, to aid in the prosecution of the wars with 
•France. The specie in the bank had been reduced to a little 
over £1,000,000, when the directors of the bank became 
alaimed and brought the matter to the attention of the Privy 
Council. The council on the 27th of February, 1797 > 
determined " that it is indispensably necessary for the public 
service, that the Directors of the Bank of England should 
forbear issuing any cash in payment, until the sense of 
Parliament can be taken on the subject;" On the Sd of May 
following, the suspension was sanctioned for a limited time 
by an act of Parliament, and was subsequently continued 
by repeated acts of Parliament until 18fi0, when an act was 
passed providing for the resumption of specie payments by 
degrees, beginning on the 1st of October, 1820, and reach- 
ing full payment on the 1st of May* 1823. The people of 
Oreat Britain were; obliged, therefore, to cany on their 
affairs for a period of twenty-five years with an irredeemable 
bank paper currency, Dttrang this period, notwithstanding 


the vast expenditures of war and the great burdens of taxa- 
tion, Great Britain increased in wealth and prosperity more 
rapidly than at any other period in her history. The public 
revenues were increased from £23,126,000 in 1797 to 
£72,210,000 in 1815, at the close of the war with France, 
and stood at £54,282,000 in 1820. The amount raised by 
loan and taxation, during the time referred to, was never 
less in any one yea*' than £47,362*000; during nine years it 
was over £70,000,00p a year; and for the years 1813 and 
1814 it was respectively £108,397,000 and £105,698,000. 
The loans negotiated by the bank for the government during 
the suspension of specie payments amounted to £350,000,000. 
During this period the Bank of England was a tower of 
strength to the government. But what after all enabled 
Great Britain to surmount all difficulties and come off victo- 
rious in one of the greatest contests of modern times, was 
the wonderful development of her producing forces, occa- 
sioned by the abundance of money put in circulation by the 
war, irredeemable though it was. During this time 3,000*000 
of acres of unimproved land were brought under cultivation j 
and the exportation of manufactured cotton goods increased 
in amount from £7,000,000 in 1801 to £27,000,000 in 1822, 
All j classes of society participated in the general prosperity 
which prevailed, and during the entire period the nation 
never once suffered from a commercial crash or money 

The guns of Waterloo, however, had hardly ceased to 
echo, until the money power became clamorous, just as it is 
in the United States now, for a return to specie payments. 
No one was so blind as not to be able to see that Great 
Britain was enabled, by her paper money alone, .-to carry on 
b^r wars on the Continent, and that by it alone were the 
people enabled to make such remarkable progress in com- 


merce, agriculture and manufactures; but there were, never- 
theless, large numbers who were bitterly hostile to paper 
currency, and who seemed to imagine that they were being 
subjected, in some way, to a great wrong. Landlords, for 
example, in many instances, in contempt of the law which 
gave their tenants the right to pay in bank notes, compelled 
them to pay their dues in gold. There were evidently fools 
and rascals in those days, as well as at. the present time. 
The "political economists," backed by the "cannibals of 
change alley," were strong in Parliament, and the country 
gentlemen were led to believe that a return to specie was 
essential to their interests and safety. Specie payments 
were accordingly resumed in 1823, and the resumption 
was accompanied by the most disastrous commercial crash 
and money panic that 1 ever visited any nation. The era of 
general prosperity departed to return no more. Real estate 
depreciated largely in value, and the real estate owners of 
the kingdom decreased in number from over 150,000 to less: 
than 40,000; business men, merchants, manufacturers, etc., 
were ruined by the thousand; waged were reduced, and 
laborers thrown out of employment by the .tens of thousands; 
an$ the public revenue fell off to such an extent that pay- 
ments on the public debt ceased, and have never practicably 
been resumed.* 

The bank act of 1844, by which the issue department was 
separated from the general banking business of the institu- 
tion, remedied some of the defects of the system which the 
bank had founded, but suspensions of specie payment are 
still of frequent occurrence. In 1837 another crash and 
money panic occurred in England, which also involved 
this country. Congress, in 1832, had raised the price of 
gold, as compared with silver, to sixteen to one, and demon- 

*See Chapter en Specie Besumptlou. 


etized silver by making it a legal tender only for small sums. 
Gold thus became the basis of the currency, and when the 
Bank of England called it away to supply the wants of 
England, the banks of the United States were obliged to 
suspend. Business in the United States was brought to a 
complete stand, and for three years the American people 
were left without any gold basis, and were consequently 
obliged to use shinp lasters. In England the losses were so 
enormous and the distress so great, that Parliament at its 
next session reorganized the bank by separating the issue 
department from the general business department, as already 

From September 7, 1844, when the bank was reorganized, 
to February 4, 1858, it altered its rate of interest fifty-six 
times, raising it, from time to time, from two to ten per 
cent., in an effort to retain its specie in its vaults; this, in 
the meantime, led to great financial embarrassment, and a 
panic was only averted by the bank suspending specie pay- 
ments (October 23, 1847) and affording relief by issuing 
irredeemable paper. In 1857, having ruined the merchants 
and business of England, it was again obliged to suspend. 
Eleven changes in the rate of. interest were made between 
April, 1857, and, (January, 1858. The bank again drew 
upon the United States for gold, causing the banks to sus- 
pend, involving thousands of people in ruin and bankruptoy. 

In 1866 the Bank of England suffered another suspension 
in consequence of the war on the Continent of Europe; but 
this time the United States escaped. Greenbacks were the 
medium of exchange, and the nation was no longer at the 
mercy of foreign banks. Gold was shipped abroad to the 
amount of $45,000,000, and sold as a commodity at a high 
price for the use of the B ank of England, without occasion- 
ing the slightest ripple in the business affairs of the country. 


A distinguished statesman,* in commenting on these facts, 

"Thus, three times within less than twenty years in this 
generation, each time in violation of law and without right, 
has the bank of England suspended, and acknowledged her 
bankruptcy! what a 'marvel of financial strength and credit' 
she has been, to be sure! Well may the bullionists sing 
paeans to this destructionist of all values for their benefit. 
True, each time her failure was sanctioned by a healing act 
of Parliament, because her illegal suspensions were necessary 
to save the credit of the government itself and to prevent 
the widespread destruction of all values and the overthrow 
of commerce and manufactures which was then going on." 

"Neither of these suspensions took place until she had 
refused all discount to her customers, even on the best sixty 
day commercial bills secured by government securities. It 
will be thus seen that gold was not the regulator of the 
currency of England, but the price paid for money at her 
bank, and having provided herself with a currency based on 
gold, in order to retain that basis whenever it is wanted for 
foreign loans, or because of a foreign war, she is obliged to 
increase the value of her unit by changing the rate of dis- 
count, or the interest which her people were obliged to pay 
for their money." 

"This is a very important matter to be borne in mind. 
Indeed it is the root of the whole matter, and in discussing 
questions of finance has been too often overlooked, because 
it shows that after all, a currency based on gold must have 
its value determined by the rate of interest paid for it, and 
not by the stability in value of gold itself. Because of this 
necessity of keeping gold in her vaults, the Bank of England 
could not maintain a steady and permanent rate of interest 

* Address of Hon. B. F. Butler, at the request of the Board of Trade of New 
York City, Oct. 14, 1S76. 


for money to which her business men could adjust their 
-affairs. Hence come fluctuations of trade, financial depres- 
sion, ruin of commerce, the stoppage of manufacture. Who 
can carry on business requiring credit, successfully and 
without failure, when the rate of interest which he must pay 
for his accommodations and loans, alters day by day and 
quintuples in a month, and especially when these changes 
oome from causes that he can neither foresee, guard against, 
hinder or alleviate?" 

"I challenge all the bullionists of the country to show any 
•disasters and losses in trade and commerce, traceable to 
inconvertible paper, continental money and all, which shall 
be equal in effect, either as to sums, amounts, disasters or 
ruin to the business and people of a country, with these I 
have sketched coming from a currency called 'honest money,' 
based on gold in the vaults of a bank." 

The average bank note circulation of the Bank of England 
|or the pasttwenty-eig^t years has been $100,000,000; its 
average of bullion, $80,000,000; its average rate of discount, 
4,per cent.; its average deposits, $100,000,000$ its average 
liabilities, $102,000,000; and its average reserve, $9,500,000. 


The first public bank in Scotland was established in 1695, 
xinder a charter from the Scottish Parliament before the 
union with England. The Scotch banking system is similar 
to that of England, but is conducted veiy differently. With 
;a population of a little over 3,000,000, Scotland has nearly 
400 banks. From Colwell we learn that, "Whilst the Bank 
of England, from its first conception, was identified with the 
government, the Bank of Scotland, and those which suc- 
ceeded it, identified themselves with the whole body of the 
people, from the laborer who could save five pounds to the 


richest merchants and manufacturers. They became at once, 
and have continued to be, the savings banks of the poor but 
industrious classes. The banks paid one per cent, below the 
current rate of interest for these deposits, and returned them 
on demand, or according to stipulation. These savings of 
the poor help largely to make up the vast sum of deposits 
which characterize the banks of Scotland. One result has 
been to give the benefits of these savings to the general 
customers of the banks, instead of their being invested in 
the public debt, or lent upon mortgage, as in England. 
No doubt this has contributed greatly to that progress 
in wealth and productive industry which has so much distin- 
guished Scotland for more than a century. It had another 
good effect in begetting that care, caution and prudent 
management for which the banks of Scotland have so well 
founded a reputation. " Another peculiar feature of the 
banking system of Scotland consists in the manner of 
giving cash credits. An applicant deposits approved secu- 
rities with the bank and is allowed a standing credit on its 
books. He then draws checks for this amount and makes 
deposits in tMfe ordinary way. An account is made up ever^r 
six months, the rate of interest charged on loans' bieing orie 
per cent, more than that allowed on deposits. In comment- 
ing upon this feature of banking in Scotland, Col well says: 
"In England, the bank which deals in promissory notes and 
bills of exchange, is dealing in paper which represents 
business transactions which are past; in Scotland, the bank 
opens credit for its customers, with reference to business 
which is to come. In Scotland, the banks give their custo- 
mers a credit which helps their standing, and upon which 
they can draw for the purpose of payment, whenever there 
is need. The theoiy of the English banks is, that the 
currency must follow, and be controlled in quantity, by the 


business transactions which go before. The theory of the 
Scotch banks is, that these business transactions being all 
managed by men of business, who decide according to the 
exigencies of industry and trade what will promote their 
private interest, and meet the wants of the people, it must 
prove an important aid to men thus engaged to supply them, 
in advance of the progress of their business, with a credit 
upon which they can draw at pleasure. * * In England, 
they think this will lead to over-trading, by the stimulus it 
affords to so large a class of dealers: in Scotland, long 
experience has taught them that this English apprehension 
is wholly groundless. They know that the dealers who 
enjoy these cash credits are so immediately brought under 
the supervision of the banks, and their own sureties, that 
they are, perhaps, the most prudent and safe men of business 
in the world. * * There is a prevalent idea among 
statesmen and writers upon money, that there should be a 
broad basis of money or gold coin, under and as a support 
to the paper circulation; * * that a paper currency, to 
be perfect, should fluctuate as a gold currency would do, if 
it were the sole medium of payment. To the mind of a 
Scotch banker, a greater absurdity could not be presented 
in as many words. He would say: * What! when a demand 
springs up for gold, in consequence of some foreign war, 
must we so regulate the issues of our banks, as to reduce 
the currency of notes in the same proportion that the 
currency of gold is carried off! Rather should we increase 
our issues, and supply the place of the currency that is 
exported.'- They know that bank notes can fully discharge 
the functions of money, for they see it every day; and not 
only so, but they are certain that almost no business of 
Scotland is carried on by means of a currency of gold. 
The Scottish people can never be made to comprehend why 


their bank notes, bank deposits, and cash credits, should 
fluctuate in amount as gold would fluctuate, if exclusively 
employed. These forms of currency do not come of gold; 
they are not founded upon it, and they have nothing to do 
with it. In Scotland they understand, as well as they do in 
England, the use of gold as money; they know its value as 
a commodity, but being a costly commodity, they do not 
incline to employ it as a currency, except so far as their bank 
currency fails of its object; nor do they wish to purchase Or 
hold it as a commodity, except for such special purpose as 
may promise adequate advantage. Their system of banking 
• enables them to dispense with it almost entirely. In this, 
they are far from thinking themselves behind their neigh- 
bors, in intelligence or financial skill." The banks <rf 
Scotland issue bank notes as low as £1, and the people of 
Scotland are always amply supplied with a medium of 


France enjoys a financial system superior to that of any 
other nation. The fiscal affairs of the government are 
Conducted by a central administration, or Ministry of Finance, 
and eighty-six branches located in different districts. AH 
transactions between the government and the people are 
carried on in the forms and methods of the treasury depart- 
ment, without the intervention of banks. The government 
has no connection with the Bank of France, but deals with 
it as it does with individuals, except that its notes are made 
a legal tender whenever the scarcity of specie renders such 
a step necessary. The treasury department of France in 
many respects takes the place of banks. It is regarded as a 
duty by the French government to afford the people all the 
facilities in the way of domestic exchange that banks could 


give, instead of . allowing it to be furnished exclusively by 
the banks. 

In each district there is a receiver general, in whose office 
the revenues of the district are paid. When once paid in 
they are subject to the order of the central administration 
alone, and abundant precautions exist to insure strict 
accountability and integrity. The treasury is managed with 
special reference to the wants and requirements of the 
public. The manner in which its operations in this respect 
are conducted is thus set forth by Colwell: "Among its 
numerous officials, is one in direct relations with the chief 
minister of finance, who has special charge of the locality of 
all money in the treasury. He can neither receive nor pay 
money; but he can transfer the public money from one 
office of the treasury to another, and place it wherever the 
exigencies of the government may require. It is in the 
office of this functionary that is established a direct and 
very important connection with the current business of the 
day. His duty requires of him a careful and timely study 
of the points of public expenditure; he must know not only 
where the money will be wanted, but he must have it ready 
when required. To accomplish this important object, it 
becomes his duty to study the domestic trade of the country, 
that he may avail himself of the internal exchanges in the 
necessary distribution of money in the treasury. It is very 
rare, indeed, that the French treasury ever shifts the locality 
of gold or silver. It may require many circuitous transfers 
to move the excess of revenue, in some departments, to the 
points of expeniture, and to supply the deficiency in other 
departments. To make these transfers, the officer who has 
special charge of that duty relies almost wholly on the 
domestic exchanges. He is well informed where funds are 
wanted for the purposes of industry or trade; he learns 


where and when those who reside in the vicinity of each 1 
office of the treasury desire to remit funds; and he learns 
whence and when they wish to draw them. His office 
becomes the depository of this information, because he 
intervenes in this business of giving drafts upon the treasury, 
payable at other points, and giving money at his own office 
for money received at other offices. His intervention in the 
transmission of funds assists in balancing the internal 
exchanges of the country; for, of course, the office is only 
applied to when the business of individuals requires such 
accommodation. But this business is not confined to receiv- 
ing money at an office of the treasury in one place, and 
paying the amount as may be required at another office, in a 
different place; that is, to a mere exchange of money between 
the treasury and individuals at different places; it goes much 
further. At times and places where large transfers of funds 
become necessary, the proper officer of the treasury becomes 
the receiver of commercial or individual paper to a large 

"The receivers-general of the eighty-six departments, and 
their subordinates, the receivers of the treasuries of the 
arrondissments and communes, maintain reciprocal business 
relations by frequent exchanges of money, by drafts upon 
each other, and by bills upon Paris and other places. The 
chief officers of the treasury become, by the constant report 
of this business to them, intimately acquainted with the 
whole industrial and commercial movement of the popular 
tion. They regard it as extremely important to these inter- 
ests, that the money which is necessarily withdrawn from 
private uses for public purposes, should be retained in the 
treasury as short a time as possible. Out of 300,000,000 or 
400,000,000 of francs annually remitted from the country 
treasuries to Paris, not more than ten per cent., or 30,000,000 


or 40,000,000 of francs, are ever at one time in the public 
treasuries.* This shows that disbursement follows so rapidly 
upon receipt, that the money taken from the people for taxes 
does not remain, on the average, more than a month or two 
out of its proper channels, and that the government has 
carefully reduced the inconvenience and disadvantage of 
taxation to the lowest possible point. By this regular and 
constant communication with men of capital and business, 
by this constant association with them in the business of 
transferring funds, the officers of the treasury are able at all 
times to command, in advance of the regular receipts, large 
sums of money, which are freely placed in the public treasury 
at low rates of interest. Money is, in fact, frequently pressed 
upon the various receivers by those who desire short but safe 
investments, and by those who would secure, in good season, 
the aid of the treasury in placing money at particular points. 
The treasurers of the departments do not lend money, 
though they receive it in the way of short loans; they 
transfer money for individuals, and they purchase bills of 
exchange upon such points as the exigencies of the public 
may require. Upon one side, then, there are open relations 
between the public treasuries and the movements of trade, 
industry and currency; that is, upon the side of the domestic 
exchanges of the country; the transactions of the treasury, 
in relation to the distribution of its funds, are blended with 
the movements of the internal exchanges as conducted by 
the individuals concerned in it. This constitutes a very 
broad field of contact between the business of the country, 
from which the money is withdrawn by taxation, and the 
public treasury. The public money being retained for the 
shortest possible time, is so managed, nevertheless, as to 
render an important service in aiding and regulating the 
internal exchanges." 

•This was prior to 1860. 


"Taxation having reached, in France, a point beyond 
which it cannot be increased without passing the ability of 
the people to pay, an alleviation of the burden, like that we 
have just mentioned, is of signal advantage. According to* 
the former revenue system of France, the money remained 
for many months in the hands of the receivers, who merely 
made advances, on interest, to the government from time to- 
time, and settled their accounts once a year. Now, all 
money is held to be in the treasury from the moment it is 
received into the office of any department; and it is sent 
into general circulation again with as little delay as posssible. 
The assistance thus afforded to the adjustment of the- 
domestic exchanges greatly promotes punctuality in com- 
mercial and industrial payments and remittances, by dimin- 
ishing the expense and the disturbances occasioned by- 
paying the balances of the internal trade. These features; 
of the present financial system, by which it is so closely 
connected with the internal trade and exchanges, are* 
regarded by an eminent French writer upon finance as: 
rendering less necessary in France than in other countries,, 
that development of credit in banking which is so prevalent 
and so dangerous elsewhere." 

Business in France, owing to the abundance of money 
always kept in circulation, is done mainly with cash, and 
the credit system, which has wrought so much evil in Great. 
Britain and the United States, has never gained a foothold 
there. So great is the prejudice of the French people- 
against the system, doubtless because they are not blind to- ( 
its workings in England, that they cannot be induced to- 
even keep ordinary bank accounts and use checks, in the' 
way of business. M. Pinard, Manager of the Comptoir 
cPJEscompte, testified before the French commission of 
Inquiry of 1865-8, that great efforts had been made by that 


institution to induce French merchants and shop-keepers to 
adopt English habits in this respect, but in vain; " it was no 
use reasoning with them," he said, "they would not do it> 
because they would not." 

Gold and silver are the. legal tender money of France,, 
but whenever occasion renders it necessary the notes of the 
Bank of France are declared a tender in payment of debts;, 
and the channels of trade are thus always supplied with a. 
medium of exchange, to keep the producing forces of the 
nation at work. The wisdom of this policy has been signally 
illustrated twice within the past thirty years — in 1848 and in 
1870. In 1848, after the revolution, the republic found 
itself without revenue and the people out of employment* 
Matters were in a precarious situation, and the Bank of 
France alone possessed any available money. Instead of 
looking after its own interests alone, it united with the 
government in a hearty effort to stimulate industry, by 
supplying the arteries of trade with a fresh supply of money- 
To accomplish this end, the govern ment declared the notes. 
of the bank a legal tender — an act which was everywhere 
denounced by the bullionists as suicidal. The marvelous, 
results of this step are thus depicted by the London Times* 
of February 16, 1849, although less than a year before it had 
been loud in its denunciation of such a course: 

"As a mere commercial speculation, with the assets which 
the bank held in its hands, it might then have stopped pay- 
ment, and liquidated its affairs with every probability that a 
very few weeks would enable it to clear off all of its liabili- 
ties. But this idea was not for a moment entertained by 
M. D'Argout, and he resolved to make every effort to keep 
alive what may be termed the circulation of the life blood 
of the community. The task was overwhelming. Money 
'vteg to be found to meet not only the demands of the bank 



tout the necessities, both public and private, of every rank in 
society. It was essential to enable the manufacturers to 
work, lest their workmen, driven to desperation, should fling 
themselves amongst the most violent enemies of public 
order. It was essential to provide money for the food of 
Paris, for the pay of the troops, and for the daily support of 
the ateliers nationaux. A failure on any one point would 
have led to a fresh convulsion. But the panic had been 
followed by so great a scarcity of the metallic currency, that 
a few days later, out of a payment of 26 millions fallen due, 
only 47,000 francs could be recovered in silver." 

"In this extremity, when the bank alone retained any 
available sums of money, the government came to the rescue, 
and, on the night of the 15th of March, the notes of the 
bank were by a decree made a legal tender, the issue of 
these notes being limited in all to 350 millions, but the 
amount of the lowest of them reduced for the public con- 
venience to 100 francs. One of the great difficulties men- 
tioned in the report, was to print these 100 franc notes fast 
enough for the public consumption — in ten days the* amount 
issued in this form had reached 80 millions. No sooner was 
the bank relieved from the necessity of paying away the 
remnant of its coin, than it made every exertion to increase 
its metallic rest. About 40 millions of silver were purchased 
abroad at a high price. More than 100 millions were made 
over in dollars to the treasury and the executive departments 
in Paris. In all, taking into account the branch banks, 506 
millions of five-franc pieces have been thrown by the bank 
into the country since March, and her currency was thus 
supplied to all the channels of the social system." 

"Besides the strictly monetary operations, the Bank of 
France found means to furnish a series of loans to the gov- 
ernment — 50 millions on exchequer bills on the 31st of 


March, 30 millions on the 5th of May, and on the 3d of June, 
150 millions, to be paid up before the end of March, 1849; 
•of this last sum only one-third has yet been required by the 
State. The bank also took a part in the renewed loan of 
•250 millions, and made vast advances to the City of Paris, 
to Marseilles, to the department of the Seine, and to the 
hospitals, amounting in all to 260 millions more. But even 
this was not all. To enable the manufacturing interests to 
weather the storm, at a moment when all the sales were 
interrupted, a decree of the National Assembly had directed 
warehouses to be opened for the reception of all kinds of 
goods, and provided that the registered invoice of these 
goods, so deposited, should be made negotiable by endorse- 
ment. The Bank of France discounted these receipts. In 
Havre alone, 18 millions were thus advanced on Colonial 
produce, and, in Paris, 14 millions on merchandise — in all, 
60 millions were thus made available for the purposes of 
trade. Thus, the groat institution had placed itself, as it 
were, in direct contact with every interest of the community, 
from the Minister of the Treasury down to the trader in a 
distant outport. Like a huge hydraulic machine, it employed 
its colossal powers to pump a fresh stream into the exhausted 
arteries of trade, to sustain credit, and to preserve the circu- 
lation from complete collapse." 

Again, in September, 1870, after France became involved 
in the war with Germany, the Bank of France suspended 
specie payments and issued legal tender notes to an immense 
amount, with like marvelous results. In June, 1870, the 
circulation of the bank was $275,000,000; in 1871, after the 
termination of hostilities, it amounted to $420,000,000, and 
in October, 1873, to $602,000,000. When the first install- 
ment of the indemnity of $1,000,000,000 to Germany fell 
due, gold, for a short period, bore a premium of 2£ per cent, 


but with this exception the notes of the bank circulated at 
par with coin, and continue to do so to this day. The 
amount of irredeemable bank notes in circulation in France 
at the present time is nearly $500,000,000. The only reason 
that can possibly be given why French irredeemable bank 
notes, to the amount of $500,000,000, circulate at par with coin, 
while United States Treasury notes, less than $400,000,000 
in amount, are at a depreciation of over 12 per cent., is that 
the French notes are a full legal tender for all debts and 
dues, both public and private, while the United States 
Treasury notes are only a partial legal tender, not being 
receivable for duties on imports. 

By the free use of irredeemable paper money, the French 
people, like the people of the United States during the 
Rebellion, were enabled to rally to the support of their 
government. But there the parallel ends. After the German 
war had ended, the circulation of irredeemable" bank notes, 
as we have seen, was increased nearly $200,000,000, and the 
producing forces of the French people were developed in 
every way possible, in order to repair the losses sustained 
during the war, and to enable the government to pay the 
indemnity to Germany. The wonderful success of this 
policy is known to all the world. The German indemnity 
of $1,000,000,000 was paid before it fell due, apparently 
without an effort, and gold has flowed into France until 
now the French people have, besides their legal tender bank 
notes, a specie circulation estimated at $1,200,000,000. It 
has been the lot of the French people to suffer, in common 
with other nations, many evils resulting from bad govern- 
ment, but they have great cause to feel profoundly thankful 
that they have never, in the administration of their finances 
been cursed with a Hugh McCulloch. 



The trials and tribulations to which the American people 
have been subjected from the earliest settlement of the 
♦country, on account of the want of a proper and well settled 
^system of money, would form a sad but instructive chapter 
in American history. The limits of this volume, however, 
preclude more than a cursory view of the subject, but that 
~will be sufficient to establish the fact that when paper money 
fails to perform the functions of money, it is because it is 
not based on sound principles, and also that bank notes, 
nominally redeemable in specie, constitute the worst form 
*of paper money ever devised. 

For many generations after the first settlement of the 
♦colonies the work of production was slow and laborious, 
:and the surplus products, at least such as could find their 
way to foreign markets, were hardly sufficient to procure in 
return the common necessaries of life. The small sums of 
money brought to the country by the settlers were soon 
^exhausted — sent abroad for merchandise, and trade for the 
most part had to be carried on by the inconvenient method 
of barter. The Indians found along the shores of Long 
Island Sound were more advanced in civilization than those 
further north, and used a circulating medium of exchange 
consisting of beads of two kinds, one white, made out of the 
end of a periwinkle shell, and the other black, made out of 
the dark part of a clam shell. They were rubbed down and 
polished, and, when artistically arranged in strings or belts, 
formed objects of real beauty.* These beads circulated 

♦Professor Sumner's History of American Currency. 


among the Indians as money, one black bead being regarded 
as worth two white ones, and were known as wampum or 
wampumpeag. The colonists came to use them, first in their 
trade with the Indians and then amongst themselves. In 
Massachusetts they became by custom the common currency 
of the colony, and were made a legal tender for 12 pence. 

Barter currency was established at an early day m the 
colonies, and products of all kinds were made a tender in 
payment of debts. "In Connecticut there were four prices: 
'Pay,' 'pay as money,' 'money,' and 'trusting.' The mer- 
chant asked his customer how he would pay before fixing 
his price. 'Pay' was barter at the government rates. 
'Money' was Spanish or New England coin, also wampum 
for change. ' Pay as money' was barter currrency at prices 
one-third less than the government rates. 'Trusting' was 
an enhanced price according to time. A six-penny knife 
cost 12d. in pay, 8d. in pay as money, and 6d. in coin."* 
About the middle of the 17th century the trade with the 
West Indies began to bring in coin, and a mint was estab- 
lished in Boston, though an infraction of the prerogative of 
the crown. Laws forbidding the exportation of coin were 
passed, but it could not be kept in the country. The first 
issue of paper money made in the colonies was made by Mas- 
sachusetts in 1690, six years before the establishment of the 
Bank of England. An expedition had been sent out against 
Canada, and, returning without spoils and in a state of 
misery, the soldiers were clamorous for their pay. £7,000 
were issued in notes from 5 shillings to £5. The form of 
these notes or bills was as follows: "This indented bill of 
ten shillings* due from the Massachusetts colony to the 
possessor, shall be in value equal to money, and shall be 
accordingly accepted by the treasurer and receivers subor- 

•Professor Sumner's History of American Currency, 


dinate to him, in all public payments, and for any stock 
(cattle) at any time in the treasury." Then followed the 
date and the signatures of the committee appointed to issue 
them. They were not a legal tender, but were receivable 
merely for taxes and property in the treasury. In 1692 it 
was ordered that these bills be received at 5 per cent, pre- 
mium over coin in the treasury, and the result was that they 
circulated at par with coin for twenty years, until redeemed, 
and barter currency ceased for a time, or at least became 
less common. In 1703 another issue of bills in the same 
form, for £15,000, was authorized by act of Parliament, but 
they were not made a tender. A subsequent act passed in 
1712, however, made them a tender for private debts. In 
1716 another issue of bills to the amount of £150,000 was 
authorized by an act of Parliament; to be distributed among 
the different counties of the province; and to be put into 
the hands of five trustees in each county, to be appointed by 
the legislature, to be let out by the trustees on real estate 
security in the county, in certain specified sums, for the 
space o$ ten years, at five per cent, per annum. These bills 
were not made a tender. Another act for £50,000 in bills 
was passed in 1720, containing similar provisions. In 17.73 
Massachusetts was out of debt. 

In 1720 bills were issued by the colony of Rhode Island 
and were made a tender for all debts, except special ones; 
and similar bills were authorized at different times subse- 
quently, some a tender and others not. 

The colony of Connecticut issued similar bills at various 
times between 1709 and 1731. New York began to issue 
bills in 1709; Pennsylvania, in 1723; Maryland, in 1733; 
Delaware, in 1739; Virginia, in 1755; and South Carolina, 
in 1703. The first emission of bills by Virginia bore 
interest at 5 per cent., and, according to Jefferson, in a very 


short time not one of them was to be found in circulation. 
They were locked up in the chests of executors, guardians, 
widows, fanners, etc. "We then," says Jefferson, "issued 
bills bottomed on a redeeming tax, but bearing no interest. 
These were received, and never depreciated a farthing.** 
In 1764 Dr. Franklin bore testimony before the British 
Board of Trade, as we have already mentioned,! to the value 
and usefulness of the bills issued by Pennsylvania. Just 
after the Revolution North Carolina issued a large amount 
of paper money, which was made receivable in dues to her; 
it was also made a legal tender. Several hundred thousand 
dollars of this paper money remained in circulation more 
than twenty years, at par with gold and silver, with no other 
advantage than being received in the revenues of the State. J 
In 1751 Parliament passed an act forbidding the issue of 
any more paper money, save in the form of exchequer bills 
redeemable in a year, except in case of war, when they 
could be made redeemable in four years; and in 1763 all 
colonial acts for issuing paper money were declared by act 
of Parliament to be void. Dr. ^Franklin protested against 
the act, but without avail. The English had reached the 
conclusion that nothing was money but gold and silver, and, 
animated by that peculiar spirit which has characterized 
their immediate descendants in this country, were determined 
that, right or wrong, everybody else should subscribe to the 
same opinion. In 1773, however, Parliament allowed any 
bills issued by the colonies to be a tender to their treasury. 


During the Revolutionary war Congress issued nearly 
$350,000,000 in bills of credit. The first issue was in 1775, and 
the confederated colonies were pledged for its redemption. 
In form these bills were as follows: "This bill entitles the 

♦See page 66. tSee page 43. ISee page 59. 


bearer to receive. . ..Spanish milled dollars, or the value 
thereof, in gold or silver, according to the resolutions of 
Congress." The last emission was in 1780 under the guar- 
antee of Congress, and was in the following form: "Th6 
possessor of this bill shall be paid .... Spanish milled dollars 
by the 31st of December, 1786, with interest, in like money, 
at the rate of 5 per cent, per annum, by the State of . ... 
according to an act of the legislature of the State of . . ■. ., 
the .... day of. ... , 1780." The endorsement by Congress 
was: "The United States insure the payment of the within 
bill, and will draw bills of exchange, annually, if demanded; 
according to a resolution of Congress of the 18th of March, 
1780." The bills were required by Congress to issue upon 
the responsibility of the several States, and the confederated 
colonies pledged their faith for their payment. They, were 
not made a legal tender, doubtless because --Congress', did 
not possess the authority to make them such. ; They circu* 
lated at par with silver for over a year, but af^er .that they 
began to depreciate rapidly in value^ owing to the character 
of the bills and the excessive ^mount put in circul^tiou. ,In 
March, 1778, they were depreciated to $.}.?$, for ^l^.pnq 
before the end of the year to $4 for $1; M^rch* 1779, I^Ojfor, 
$1; September, 1779, $18 for $1; March, ; 1 ( 7 80, $$0 for |J, 
Congress then passed a resolution to fund jtjie whol$ mass, 
at that rate, but the depreciation continued until it reached 
$500 for $J, in 1781, and after that they ceased to circulate. 
In 1791 they were still permitted to be funded at the iptp.qf 
$100 for $1. Continental money, according to Jeflferson^ 
"expired without a single groan. Not a murmur was he^rdj 
among the people. On the contrary universal, congratujay 
tions took place on their peeing tie gigantic no^ss t whose 
dissolution had threatened convulsions which should slrake 
their infant confederacy to its center, quietly interred in, its 


grkve. Foreigners, indeed, who do not like the natives feel 
indulgence for its memory, as of a being which has vindi- 
cated their liberties and fallen in the moment of victory, 
have been loud, and still are loud in their complaints. A 
few of them have reason; but the most noisy are not the 
best of them. They are persons who have become bankrupt 
by unskillful attempts at commerce with America.' That 
they may have some pretext to offer to their creditors, they 
have bought up great masses of this dead money of America, 
where it is to be had at five thousand for one, and they 
show the certificates of their paper possessions, as if they had 
died hi their hands, and had been the cause of their bank- 

As Continental money is the " ghost conjured up by all who 
wish t& give the banfcis an exclusive monopoly of govern- 
ment credit,' 1 *' it inay be well to pause a moment to consider 
iiis iiattfreL The f&per money issued by the several colonies 
$ri6r to thi devolution had staiswered the purposes of money 
admirably, tn6ugh ritit issued According to any well settled 
Policjr. Whenever it lia3 ij i f stir trial, however, it never 
Med to J&c^eeo'. But%6ntmeirtal mfehey was issued 
Mo^r v&y hifJtiMt circunistances. The colonies had been 
m'bugrit'io^ Mt by necessity. Cbh- 

tifett kkMei tiie 1 pdweiis wliicfc it eiercised through neces- 
«ty,dtfa iiis kc&'wei^^ 

a spirit of ' pdMMsni Congress hid no power to lay and 
collect tixe'sj aha tihe ! confederation was witnout revenue. 
WhatteVe'f Was cJoiiei'tiad to be done through the States. 
Aviefo aftetf iihe atddptioh of the Articles of Confederation, in 
lf#i, Congress possessed only the semblance of authority. 
Judge Story describes the situation at the time in the fol- 
lowing language: "In tn6 first place theife was an utter 

*C*lhoun,sefe page 60. 


want of all coercive authority to carry into effect its oiwtt 
constitutional measures. This of itself was sufficient W 
destroy its whole efficiency, as a superintending go vernmemy 
if that may be called a government which possesses no one 
solid attribute of power. * * In truth, Congress possessed 
only the power of recommendation. It depended altogether 
upon the good will of the States whether a measure should 
be carried into effect or not. * * Even during &te 
Revolution, while all hearts and hands were engaged in the 
common cause, many of the measures of Congress were 
defeated by the inactivity of the States; and in some 
instances the exercise of its powers was resisted. But after 
the peace of 1783 such opposition became common, and 
gradually extended its sphere of activity, until, in the 
expressive language already quoted, 'the confederation 
became a shadow without the substance.' * * Butadtlll 
more striking defect was the total want of power to lay 
and levy taxes, or to raise revenue to defray the ordinary 
expenses of government. The whole power confided to 
Congress upon this head was the power to ascertain the 
sums necessary to be raised for the service fcf the United 
States, and to apportion the quota or proportion on eadi 
Stiate. But the power was expressly 'Reserved to the States 
to lay and levy the taxes, and of course the time j as Well as 
the mode of payment, was extremely uncertain. The evils 
resulting from this source* even during the Revolutionary 
war were of incalculable extent; and but for the gddfl 
fortune of Congress in obtaining foreign loans, it is far from 
being certain that they would not have been fatal. * * 
Requisitions were to be made upon thirteen independent 
States, and it depended upon the good will of the legislature 
of each State, whether it would comply at all; or if it dH 
comply, at what time and in what manner. The very tardi- 


ness of snch an operation, in the ordinary course of things, 
was. sufficient to involve the government in perpetual embar- 
rassment, and to defeat many of its best measures, even 
when there was the utmost good faith and promptitude on 
the part of the States, in complying with the requisitions. 
But many reasons concurred to produce a total want of 
promptitude on the part of the States, and, in numerous 
instances, a total 'disregard of the requisitions. Indeed from 
the moment that the peace of 1783 secured the country from" 
the distressing calamities of war, a general relaxation took 
place; and many of the States successively found apologies 
for their gross . « gleet in evils common to all, or complaints 
listened to by jUI. Many solemn and affecting appeals were 
from time to time made by Congress to the States, but they 
ipere attended with no salutary effect. Many measures were 
sdeyised to obviate the difficulties, nay the dangers which 
4jbreatened the Union; but they failed to produce any? 
amendments in the confederation. An attempt was made 
by Pangrsss, during the war, to procure from the States an 
authority t^leyy ajn impost of live per cent, upon imported* 
fnd prize,, goods, but the atssent of all the States could not 
be procured;?'*, , 

The population, of the thirteen colonies was estimated in: 
Jjrtd at 2,448,pft0,t.ian4.the. entire property of the country at 
less than $60O,QOQ,OOO* That a paper currency, issued to 
$n expessive , amount, ,by thirteen sparsely ! settled colonies, 
flj,.a st#te of: rebellion, under a revolutionary government 
possessing, only a shadow of authority, against the most 
powerful nation on. the eajrth, should have circulated at all, 

te one of the most reniarkable facts connected with the 


Revolution, and is to be accounted for only by the patriotism 
of jthose :eugaged in that .memorable struggle. But, as we 

. . *Story on the Constitution, Vol. 1, page 171. 
- fJ efferson's Works, Vol* »Vpage 272- 


have seen, it circulated for over a year at par with silver, 
and in 1778, three years after the first emission, it depreciated 
only to $1.75 for $1. Congress resorted to various measures 
to sustain the credit of Continental bills, but, as ought to 
have been expected, without success. Money, as has beeA 
fully explained, derives it power to represent value from law, 
but there must be value in property or products, for which 
it catai-be exchanged, for it to represent, smd the law must 
emanate from a responsible source — from a government 
possessing the right and power to command .such property 
for its uses, otherwise it is only money in name. It is 
worthy of note, too, that Continental bills were not issued 
in the form of paper mopey, such as was first introduced by 
Massachusetts, an^l subsequently adopted by .marry ^>f the 
other polonies, but in the. form of promises to pay specie, at 
certain specified times, which, under the circumstances, wgw 
a manifest impossibility. The gradual depreciation of Con- 
tinental money, as it passed from hand, inflicted a loss upon 
^ach successive holder, which came to be l regarded, in the 
pature of a tax , or . contribution towards the cause of inde- 
pendence. , The large suans held by ino^iyiduals after it 
qeaqeji.Jp circulate were taken at its greatest depreciation, 
aifd poj great loss wa§ , sustained* When, after it had seen 
jthe liberties ©f thfl people vindicated, it sank, in the moment 
of victory, quietly into its grave, no commercial <prash or 
money panic attended its fall. Its ghost has troubled no 
<me since* except, . the advocates of the British system of 
bank currency^ which, perhaps, is? only ii^ accordance with 
the eternal tjti*e$3 pf things. , 

: ,■:.•); • ■...;;/ .; . .. 


We, come no^r to a new era in* the history of American 
currency. When the colonies entered the Federal Union, 


under the Constitution framed in 1787, they surrendered all 
power or control over the question of money to the Federal 
Government. The object of this was to secure to the people 
a uniform and stable medium of exchange, and hence it was 
Ahat a clause was inserted in the Constitution expressly 
^prohibiting States from coining money, emitting bills of 
4*e4it, etc.* But this wise provision of the Constitution was 
won totally subverted by the money power, through the 
instrumentality of banks of issue, modeled on the British 
system of bank currency; and practically the currency of 
4}iejcoiintry has been subject to the control of that power 
ever since. 

About the close of the Revolution four banks of issue were 
established in the United States; one in each of the States 
6f Pennsylvania, New York, Massachusetts and Maryland. 
At' the time the Federal Constitution was framed, there was 
a large and formidable party, with aristocratic notions and 
tendencies, under the leadership of Alexander Hamilton, a 
ritaltesmari of undoubted patriotism and great ability, which 
was strongly in favor of the formation of what was termed 
*a strong government." This policy grW out of a want 6tf 
faith in the pefople, and the belief that they were incapable 
of self-government. In a speech on this subject, June l'£, 
1*191, Mr. Hamilton said: U I believe' the British government 
forms the best model the world ever produced, and such 
has been its progress in the minds of many, that this truth 
gradually gains ground. This government has for its object 
public strength and individual security. It is said with us 
to be unattainable. If it was once f ormed it 'would maintain 
itself. All communities divide themselves into the few and 
the many. The first are the rich and well born, the other 
the nistss of the petiple. *' * Can a democratic assembly, 

•Seepage 64. •' ' 


who annually revolve in the mass of the people, be supposed 
steadily to pursue the public good? Nothing but a perma- 
nent body can check the independence of democracy. Their 
turbulent and uncontrollkig disposition requires checks. * * 
Let one body of the legislature be constituted during good 
behavior or life. Let one executive be appointed (for life) 
who dares execute his powers. * * All State laws to be 
absolutely void which contravene the general laws. An 
officer to be appointed in each State to have a negative on 
all State laws. All the militia and the appointment of 
officers to be under the national government. * * The 
people $re gradually ripening in their opinions of govern* 
ment; they begin to tire of an excess of democracy."* This 
policy of a strong government, based on, an aristocracy ,of 
Wealth, was .rejected by the convention; but it has nerer 
been abandoned by the money power of the country. In 
1863, in a speech, in the House of Representatives, in support 
of the National Bank Currency Bill, Hon. E. G. Spautirktg, 
a banker of New York, boldly asserted that, "It is now 
most apparent that the policy advocated by Alexander 
Hamilton of a strong central government was the true 
policy;" and at the present time we have the policy of a 
tiiird term openly and fearlessly advocated by the money 
power and its tools. ' 

Hamilton, who was the first Secretary of the Treasury, 
mrged the establishment of a National Bank modeled upon 
the British system, and upon his recommendation the first 
Bank of the United States, with a capital of $10,000,000, was 
chartered by Congress, February £5, 1791, for a period of 
twenty years. Jefferson, who was then Seoretary of State, 
gave a written opinion denying the power of Congress to 
incorporate a bank of issue, and Madison, who was in 


Congress, opposed it, in a powerful speechj as a violation of 
the Constitution. InlSllthebank applied to Congress for 
a roii i.' wal of its charter, but it was not granted, ■ Clay ami 
other leading statesmen opposed its ro^oharter on thegrouud 
that it was " unconstitutional, anti- American, and strictly ^ 
British institution." . . '.'■:;' ' 

In the meantime a mania to start, banks had sprung .up: in 
New England, which, subsequently extended to the! Middle 
States, and finally all over the country; In 18 15>' Jefferson 
gave the following statement of the- number of hanks which 
had been established up to that time: : '■ -'" '■'*•• 

"In 1581 wo had ,1 bank; capitalj. :>)... . . . .. *l,0Q0#OCl 

.,♦',1791 r" 6 banks. . <; : -,.— .!*-: • l&SOfl.POOi 

« 179* « 17 " . " 18,642,000 

'"■1796 '■"« "2*" ■"'"" ''' I...:-;...'... 20,472,06* 

■." 180fl " -' ! 84' *■'■■" "><ii. i.'. 1 . !-;■;, ;■.•;. 2*,112;0«r 

;" 1804. .", ,. 46 ■■• "...,, amount oticapitalnotknWn. ! 
And at this time (1815). ;we have; probably one ; hundred 
banks.'' ,,.- . i '-■ , ■;; | . ,[■, . ■>;. i . ■[•:/.■■ 

.Notwithstanding the- -constitutional prohibition against 
emitting bills of credit, charters, iiioorpottatmg private insti- 
tutions, authorised to emit bills oS , credit (bank notes), were 
granted by the legislatures of ohe several' States: iii large 
numbers, ,in utter disregard at tli*; Constitution, as well as o£ 
the public good. In Pennsylvania, for example, i twenty-fire 
charters, .incorporating specie, basis, banks of issue,, were 
granted during the session, of ^18 13, but wore yejtoed by the. 
Governor. At the next session of the legislature, in 18J4 r a 
bill was. passed over the veto of the <^yemo> chartering 
forty-one banks, with^ capital of $17,000, 000.-. Thhty/seyen^ 
of them went into operation at once, and six months after- 
wards suspended specie payment. ^TTie manner of obtaining 
a charter was very simple. A petition , setting forth "(he, 
wants of the people" in the locality where the hauik, wh»to 


be established was all that was required; political influence 
and intrigue accomplished the rest. 

Specie basis banks are always required by law to redeem 
their notes in. specie, but as they are, also, always authorized 
to issue notes to three times the amount of their capital 
stock, therr redemption in specie becomes an impossibility. 
This feature in banking, as has been explained,* was 

1/ ■ ■ ' ' '-I'll-' ' : • • . ; 

originally, nothing more than a bold plan on the part of 
certain ingenious financiers and schemers to acquire favor 
with 'tne public for the Bank of England and increase its 
business. As the system in time was found to. have a 
tendency to concentrate wealth in the. hands of the. few, it 
commended itself to the aristocratic, or governing class, of 
that kingdom, and soon became an integral part of the 
structure of British society. Transplanted to the free 
atmosphere of America the. system was afforded an oppojv 
tunityip develop its latent evils, greatly to the disad- 
vantage of American society. If banlgs were authorized to 
issue phi v a dollar of paper for a dpllar of specie held for 
ife redemption, there would be no'adyantage in issuing notes; 
tUey might as well lend the specie. Individuals obtain 
charters to carry on the business of banting on the theory 
f&at'ttiey have capitalto employ iii' that business, but under 
tne specie 'basis system tliey are not required to use their 
capital at all.' J Bank notes are issued arid exchanged for 
t&e'hotesbf- individuals. These Dank "notes are based on 
tfae credit of' the institution which issues tbem, and represent 
hbthmg Wre;' if redeenied, tney are good; if hot, they are 
as worthless as the* note o$ an insolvent individual. A bank 
6t issue" 'in effect simply substitutes its notes, of various- 
Senenimations and otherwise convenient for use in payments, 
ftflfxhe "notes of its customers. As a large portion of the 

♦Seepage 89. 


comiAunity are constantly having payments to make in 
bank, the notes of the bank are as good to them as mMsy, 
and they thus come to perf orm not only the functions of 
the individual notes, for which they were substituted, but 
Also the functions of a circulating medium. Whilst in reality 
they are nothing more than promises to pay, representing 
credit, (evidences of the indebtedness of the bank,) they at 
the same timejbecome substitutes for money. In this way 
a bank of issue enables its corporators and stockholders to 
force their credit, or evidences of indebtedness, upon the 
public, at a high rate of interest, and compel its use as a 
circulating medium, whether the public desires to use it or 
not. The medium of exchange thus forced upon the public, 
incumbered with interest, becomes a tax upon the commu- 
nity at large, because its cost enters into the price of com- 
modities.* As bank notes rest entirely upon private credit, 
Ijhey are subject to depreciation in value, which imposes an, 
additional burden upon trade and production. . It is, as, jjr$ 
have peen,f a part of the specie basis system to treat dig T 
counted paper as deposits, and this furnishes the ba^is. for 
additional loans of credit. By encouraging discounts and 
lending credit, through the instrumentality of bank notes, to 
be used as real capital, business becomes active, prices 
advance and speculation becomes rife. Inflation of banj^ 
credit and notes goes on and a huge structure of. credit is 
erected upon an insignificant basis of specie, supposed to bp 
resting in the vaults of the bank, which is toppled over by 
the first financial freeze that springs up, and the public is 
buried m Jts ^uLns. . When the banks are .called upon tQ 
redeem their promises to pay they are of course unable tp 
do so, for the wit of man has not yet devised a "jvav tj^ 
redeem several pap^r dollars with one gpld doUar. ^i^ 

•See page 49. tSee page 91. 



individuals, banks can be thrown into bankruptcy and com- 
pelled to go into liquidation, but such a stop only aggravates 
the distress of the public, and is rarely adopted; and the 
banks are permitted to escape, only to repeat the operation 
as soon as confidence has been restored through the aid of 
the Sheriff.* The extent to which banks are enabled to 
lend their credit by means of the specie basis system of 
banking will appear from an examination of the following 
table, which is an abstract of the Commissioners' Report of 
the banks of Connecticut for a period of twelve years, from 
1837 to 1847 inclusive and the year 1849. The banks qf 
Connecticut, it should be mention A, were conducted during 
this period with as much safety to the public as those of any 
other State in the Union: 


Capital. Ciroulation. 




Loani and 




■ ■■■ 




(8,744,897 50 

s.-.--A,itil -J. 

S.-7-.2I7 IJ. 
S. ST.!, S^T :l 
s,s7r.;,:U7 .",7 
VW.« :■■ 

■•.,:;.'!.: ■.:■> « 
... .:;,■!, 7. [s !.. 
s,r. ■.-,..::■! n.»,T4-j ih. 

l.MJ,r»2 4; 
:!,;>S7,M". .(: 
ii.SiV'*' * 
2.TS4.72] V 

:,s.'.-,...^ 3: 
5.3 n.i'17 re 
3.4:m.i,',ii« iji 
4,102. I!t « 
3.:"j'.S.h47 IJi 
4,4S7.n:il Ofi 

*15.71;o*J4 ■■•: 
12,102,631 11 
l*,yi^.7T« Ml 

12,?50,:,72 li 

is,* so, 373 is 

l:*,+ti. : i l (jS2 it. 
12,<jll.l24 0' 

i4,47a.!i.ti :;- 

i.-.,-.>«.-is 7. 

15.S!'2.<l*i 1"' 
15,784.772 "1 

?ll--.,3*-'. 1' 
535,417 *i 
W2,1*J 17 
■lift' .03 2 52 
W.'i'.K ill 
1:W,7'>2 U2 
45 , f,!i r >* 79 
481,3*7 f* 
(if!l«S- r >:i 

11:5,246,495 08 

10.l2s.fiJJ 87 us 

10.1,5.1.113 37 
9.7sw.392 27 
]r>,M2,955 3.S 
1 2.477, IWOfi 
I3,fi3>.,fi0o 78 
12.7S1.W7 13 


H. ;>■*"!, 91 7J"« 

]H4.2'j!i.f.4fi 57 

4.;M1,:.71 00 

1157,550,872 44 

j5,lfiK.<iS7 LIS 

7.7."-i.ti7r. of 

!12'1,2<>2*!'8 33 
13,74l)..-.Ul 00 

s-.,7i4,(-:a (-; 

Jlin.ii33.4-i9 3-3 

Araratfe Capital, ... 

Average Liabilites, - 

Avenue Specie, ... 
iren-ge Loani and Discount!, - 

- - - - - i&iJsa,2K5e 

- - - - 13.129,88? 37 
4M,T19 5B 

- - - - 11,869,457 44 

Kellogg, who gives this table, f in commenting upon it, 
says: "By the foregoing table it will be seen that the average 
amount of the specie held by the banks in the State of 
Connecticut, for the twelve years, was $478,719, while .the 
average amount of their loans to the public, during the same 

'Set pate to. tKellogg'a Now Monetary System, page SM. 

124 bInks op the united states. 

period, was $11,669,457 — more than twenty-four and one- 
third times as much money as the banks had specie. The 
annual interest on $11,669,457 was $700,167. If they could 
have loaned only their specie, the interest would have 
amounted to but $28,723. The banks gained from, the public 
annually $671,444 above the interest on their specie;. and, 
in the twelve years, $8,057,328. They collected this interest 
in advance, and made their dividends half yearly to their 
stockholders; therefore, it is proper to compound .this 
interest half yearly, which would swell their gains to nearly 
$12,000,000, that is to say, $1,000,000 interest annually. 
These ^ere actual gains, as much realized by these banks as 
if they had produced 'ana sold annually $700,167 worth of 
agricultural products." (The statements 5 of the banks of 
any of the large cities, published from time to timer in the 
newspapers, will disclose a similar inflation of credit at the 
present time. The fact that the . National Banks do not 
redeem their notes in specie makes no difference. They are 
banks of issue and belong to the specie basis system all the 

The banks of the United States have been compelled to 
suspend specie payments at various times as follows, to wit: 
in 1809, 1814, 1819, 1825, 1834, 1637, 1839, 1841, 1857, 1861, 
and in 1873 currency payment. These suspensions have 
invariably occasioned great public distress, and in several 
instances have involved the entire country in bankruptcy 
and ruin, from which it took years to recover. In March, 
1809, a legislative committee of the State of Rhode Island 
made an examination into the affairs of the Farmers* 
Exchange Bank of Gloucester, and it was found that the 
bank had $580,000 of its notes in circulation, and only 
$86.16 in its vaults for then- redemption. Before the end of 
the year a general suspension of the banks of New England 
took place; and it was discovered that they were nearly all 
in the dame condition — no specie and nothing to show but 
the worthless notes of speculators. 



CRASH OP 1814. 

In 1814 all the banks outside of New England, including 
the forty-one banks chartered by the Pennsylvania legislature 
in the early part of the year, were obliged to suspend specie 
payment, occasioning great distress. The people were help- 
less, and could do no better than to use their depreciated 
notes. This condition of affairs lasted for years. The 
following table shows the depreciation of the notes of the 
banks of the cities of Baltimore, New York and Philadelphia 
during the suspension: 

181 4 — September , 

October. . . 

November , 

1815 — January. . . 

February . . 





July. . . . . 

August . . . 


October . . . 


1816 — January. . . 

February. . 





July , 

August. . . 

September , 

October. . . 

November . 

December . 
1817 — January. . . 

February . . 

Per cent. 

Per cent. 

■ New York. 
Per cent. 


• • 


• • 


• • 


• • 


















19 " 





















. 18 












. 15 

























On the first of January, 1817, the second Bank of the 
United States began business, and on the 20th of February- 
following specie payments were nominally resumed. The 
extent and character of the resumption that took place may 
be gathered from the following case cited by Sumner, in his- 
History of American Currency: "In 1817 a case at Rich- 
mond, after specie payments were resumed, gave an insight 
into the state of things. A man having presented ten one 
hundred dollar notes for redemption was refused. He could 
not get a lawyer to take a case against the bank for a long- 
time. Finally having obtained judgment, the Sheriff was 
sent to collect. The president of the bank was taken before 
the court, but refused to pay. The bank was closed by the 
Sheriff, but soon after opened and went on." 

The specie basis system had now been in operation long 
enough to produce its legitimate fruits, and accordingly we 
find that here and there the people were becoming alarmed 
at its encroachments upon their rights, as well as at the evils 
which it inflicted upon the public. The following is an 
•extract from a report of a legislative committee of the State 
of ¥Tew York in 1818: 

u Qf all aristocracies, none more completely enclave a 
people than that of money; and, in the opinion of ,your 
coihmittee, no system was ever better devised so perfectly 
to pnslave a community as that of the present mode of con- 
ducting banking establishments. Like the siren of the fable, 
they 1 entice to destroy. They hold the purse-strings of 
society, and, by monopolizing the whole of the circulating 
medium of the country, they form a precarious standard, by 
which all property in the country — homes, lands, debts and 
credits, personal and real estate of all descriptions — are 
valued, thus rendering the whole community dependent 
upon them; proscribing every man who dares to expose their 



unlawful practices. If he happens to be out of their reach', 
so as to require no favors from them, his friends are made 
the victims; so no one dares complain. The committee, on 
taking a general view of our State, and comparing those 
parts where banks have been, for some time, established with 
those that have none, are astonished at the alarming disparity. 
Thejr see, in the one case, the desolation they have made in 
societies that were before prosperous and happy; the ruin 
they have brought on an immense number of the more 
weahhy farmers, and they and their families suddenly hurled 
from wealth and independence into the abyss of ruin and 
despair. If the facts stated in the foregoing be true, (and 
ydur committee have no 'doubt they are,) together with 
others equally reprehensible and to be dreaded, such as 
that their influence t66 frequently, nay, often already, begins 
to assume a species of dictation altogether Alarming, and; 
unless some judicious remedy is provided by legislative 
wisdom, we shall soon witness attempts to control aH sefec^ 
tiottd to offices in our counties — nay, the etecl£oh6 toti&fe 
very legislature. Senators and members of assembly tvill 
be indebted to the banks for their seat in tliis cartel jttnfi 
tfafe the "Wise end of bur civil institutions Will be pfttetffeteli 
itttfaedtist'of corporation* of their own rttising i . w ' ! ' 

' .<< - \ ' • • ••','' • • '..•{■ j . 

,,..; ,, ; :the.<£rash OF 1819. •.';■, 

In 1818 the bank of the United States had discount** to 
the" imfcHiat of $48,000)000, and had $2^000,000 in specie. ■ It 
had established eighteen branches, and its ndtes could not 
be signed fast enough for the public. To increase its reserve 
of specie it had bought $7,000,000 of bullion abroad, at a 
cost of $800,000 for expenses, but it was exported as fast as 
it was imported. The Bank of England, which had been 
in* suspension since 1797, was preparing to resume specie 


payments, and was drawing specie from every source that 
was available. In April, 1818, less than fifteen months after 
the Bank of the United States started, it was believed to be 
insolvent. A committee, appointed by Congress to inves- 
tigate its affairs, reported a resolution requiring the bank; to 
show caijse why its charter should not be forfeited, but the 
resolution was lost, forty members of Congress being , stock- 
holders in the bank. The bank now resorted to vigorous 
measures to . save itself from bankruptcy, and in a little 
over two months was once more polvent. It had, however, 
ruined the country. The amount of bank note circulation 
in 1813-14 was about $45,000,000; in 1817-18, $100,000,00Q; 
and in .1819 about $45,000,000. Contraction had done its 
work, and the ruin which it hadj accomplished was deep and 
widespread. Jn August, 1819, 20,000. persons were; peeking 
employment in, Philadelphia, and a similar condition of affairs 
prevailed in New York, Baltimore and other cities.. .The 
distress was least severe in New England. In the Western 
States, it was intense,. . In the South the banks still pretended 
tp pay, specie, but^the following account of the manner in 
which ,tbey did business in some localities would hardly justify 
the pretension: Qne who presented a bill had to njajta oath, m 
the bank that the bill was his, own and that .he was , not, an 
agent for any one. He was required to make this oath 
before the cashier and five directore, and had to pay $1,374 
expenses oil each. bill. » .. , 

; Stagnation, and distress lasted throughout the year ^820. 
Wheat was, 20 cents per bushel in Kentucky. At Pittsburgh 
flour was $1 per barrel, boards, $2, per thousand, etc., etc*, 
while imported goods remained at their old prices. One 
and a half bushels of wheat would buy a pound of coffee; a 
barrel of flour would buy a pound of tea, and twelve and a 
half barrels of flour would buy a yard of broadcloth. ..Bvrt 


& better idea of the condition of affairs may be formed, 
perhaps, from a report of a committee of the Senate of 
Pennsylvania, of which the distinguished Condy Raguet 
was chairman, made on the 20th of February, 1820. It is 
as follows: 

"In ascertaining the extent of the public distress, your 
committee nas had no difficulties to encounter. Members of 
the legislature from various quarters of the State, have been 
consulted in relation to this subject, and their written testi- 
mony in answer to interrogatories submitted to them by the 
committee, has agreed, with scarcely a single exception, on 
aH material points. With such respectable weight of evi- 
dence, added to that which has been derived from the 
prothonotaries, recorders and sheriffs of the different counties, 
from intercourse with numerous private citizens residing in ' 
different parts of the state, as well as from the various peti- 
tions presented to the legislature, your committee can safely 
assert that a distress unexampled in our country since the 
period of its independence, prevails throughout the common- 
wealth. This distress exhibits itself' under the various 
forms of — 

" 1. Ruinous sacrifices of landed property at sheriff's sale's, 7 : 
whereby, in many cases, lands and houses have been sold &t 
less than a half, a third, or a fourth of their former valtteY 
thereby depriving of ifcheir homes, and of the fruits of labo- 
rious years, a vast number of our industrious farmers,; some 
of whom have been driven to seek, in the uncultivated forests 
of the west, that shelter of which they have been deprived 
in their native State. 

" 2. Forced sales of merchandise, household goods, farming 
atock and utensils, at prices far below the cost of production, 
\>y which many families have been deprived of the common 
necessaries of life, and of the implements of their trade. 



" 3. Numerous bankruptcies and pecuniary embarrassments 
of every description, as well among the agricultural and 
manufacturing as the mercantile classes. 

"4. A general scarcity of money throughout the country, 
which renders it almost impossible for the husbandman or 
other owners of real estate to borrow at a usurious interest, 
and where landed security of the most indubitably character 
is offered as a pledge. A similar difficulty of procuring on 
loan had existed in the metropolis previous to October last^. 
but has since then been partially removed. 

"5. A general suspension of labor, the only legitimate 
source of wealth, in our cities and towns, by which thousands 
of our most useful citizens are rendered destitute of the 
means of support, and are reduced to the extremity of 
poverty and despair. 

"6. An almost entire cessation of the usual circulation of 
commodities, and a consequent stagnation of business, which 
is limited to the mere purchase and sale of the necessaries of 
life, and of such articles of consumption .as are absolutely 
required by the season. 

"7. A universal suspension of all manufacturing . opera- 
tions, by which* in addition to the dismissal of the numerous 
productive laborer? Jieretpfore eiigagedjtherein*.who can find 
noptjier employment* the public loses ;the revenue of the 
capital invested in machinery and buildings. 

"8. Insurious extortions, whereby -corporations instituted 
for banking, insurance and other purposes, in violation of 
law, possess themselves of the products of industry without 
granting an equivalent. 

" 9. The overflowing of our prisons with insolvent debtors,, 
most of whom are confined for trifling sums, whereby the 
community loses a portion of its effective labor, and is com- 


pelled to support families by charity who have thus been 
deprived of their protectors. 

" 10. Numerous law-suits upon the dockets of our courts 
and of our justices of the peace, which lead to extravagant 
costs and loss of a great portion of valuable time. 

"11. Vexatious losses arising from the depreciation and 
fluctuation in the value of bank notes, the imposition of 
brokers and the frauds of counterfeiters. 

"12. A general inability in a community to meet with 
punctuality the payment of debts even for -family expenses, 
which is experienced as well by those who are wealthy in 
property as by those who have hitherto relied upon their 
current engagements. With such a mass of evils to oppress 
them, it cannot be wondered at that the people should be 
dispirited, and that they should look to their representatives 
for relief. Their patient endurance of suffering, which can 
only be imagined by those who have habitually intermingled 
with them at their homes and by their firesides, merits, the 
commendation of the. legislature and prefers a powerful 
claini to their interference." 

The people of the United States had not been without 
warn^g as tp^the- evils and dangers of the specie basis system, 
but they. fiad supinely allowed the money power, to gain 
control of the monetary affairs of the country^preQise^as they 
are doing now. January 16, 1814, previous to the , crisis of 
that year, Jeffersp,^ wrote as follows: " Everything predicted 
by the enemies of the banks in the beginning is no.w com- 
ing to pa,ss. We. are to be . ruined by the deluge of bank 
paper, as we were formerly by the old Continental paper. 
It is cruel that such revolutions in private fortunes should 
be at the mercy of avaricious adventurers, who, instead of 
employing their capital, if any they have, in manufactures, 
commerce, and other useful pursuits, make it an instrument 


to burthen all the interchanges of property with their 
swindling profits, profits which are the price of no useful 
industry of theirs. * * I am an ertenry to all banks dis- 
counting bills or notes for anything but coin." And again, 
January 6, 1816 he wrote as follows: "The American mind 
is now in that state of fever which the world has so often 
seen in the history of other nations. We are under the 
bank bubble, as England was under the South Sea bubble, 
France under the Mississippi bubble, and as every nation is 
liable to be, under whatever bubble, design or delusion may 
puff up in moments when off guard. We are now taught to 
believe that legerdemain tricks upon paper can produce as 
solid wealth as hard labor in the earth. It is vain for com- 
mon sense to urge that nothing can produce but nothing; 
* * Not Qiiixot enough, however, to attempt to reason 
Bedlam to rights, my anxieties are turned to the most practi- 
cable means of withdrawing us from the miki into which we 
have run. Two hundred millions of paper in the hands of 
the people*, (arid less cannot be from 1 the employment of a 
banking capital known to exceed one 1 hundred million's,) is 
a fearf ul'tdx to fait at hap-hazard on ttfeir heads. * * And 
what bave we purchased with this tax of two hundred 
millions, which' w6 are to pay by wholesale, 1 but usury, 
swindling- arid new forms of demoralization^* As we hav£ 
seen, the bubble burst, as predicted by Jefferdon, in 18l9. 
The ' stagnation and distress continued during 1821 arid 
1822. In 1823 there was a large creation of banks in 
New York, and the Bank of the United States began to 
expand. In 1824 all the banks began to expand. Pennsyl- 
Yariia rechartered the banks of 1814. In the spring of 1825 
petitions were presented in New York for fifty-two charters 
for banks and insurance companies. "In Kentucky there 
was anarchy. Alabama and Tennessee notes were at a 


discount. Indiana, Illinois, and Missouri were still suffering 
from the f relief * system (stay laws against the collection pf 
debts, e,tc.) The New York and Boston banks were fighting 
the country issues. * * The bank of the United States 
increased its issues oyer. $3,000,000."* ; 

.,: CBA8H OE 1825, 
In the letter partof 1824 and beginning of 1825 the Bank 
of England found it necessary to curtail its discounts, in 
order to check. the outflow of bullion. This occasioned 
another terrible crisis in that country. Seventy banks failed 
and nearly two thirds of the merchants and manufacturers 
stopped payment, causing great distress among the working 
classes. Gold began to flow from the United States, and 
the banks were obliged to suspend specie payments. Fifty 
failures occurred in New York before December, and banks 
went under all over the country. The crisis, however, was 
not felt so severely in the; United States as it was in Eng- 
land, because the banks had not yet had sufficient time to 
inflate their credit and circulation to the greatest extent. 
Here and there throughout the country industrial activity 
was stimulated somewhat during the next few years by the 
higji tariff of 1824 «and 1828, and by the building of railroads, 
which began in 183Q; but business generally continued to 
suffer from the rotten monetary system which had been 
fastened upon 4Jje c^ntry, and distress was more or less 




The fight between (President Jackson and: the .United 
States Batik, whiah occupied the attention of the people for 
years, now 1 began. The specie basis system had been in 
operation for over a quarter of a century, and during the 
whole time the country had never once enjoyed the advan- 

•Swaner's History of American, Currency. 


tages of a sound currency. Pecuniary distress, periodical 
returns of expansion and contraction, deranged currency, 
ruined exchanges, and panics and convulsions had charac- 
terized the entire period. The banks, although based on 
"hard money," and professing to pay coin, were in a state 
of chronic suspension. Th£ press of the country was com- 
pletely subsidized; Congressyas well a6 State ; legislatures, 
bowed in abject submission to* the mandates ' of the money 
power; and even the Supreme Court of the United States 
did not escape its contaminating influence. The people 
were perfectly helpless, and the 'outlook of Ameiieftn free- 
dom and independence wks^ dark indeed. It rsf : 'worthy of 
mention that Pitt, in 1791, *#hen Hamilton brought forward 
his funding and banking dchfeme,' said: M Let the Americans 
adopt their funding system and go Into their banking 
institutions, and their Coasted independence w*ll l be a mere 
phantom." But fortunately for' the country the" election of 
1828 resulted in the choice of Andrew Jackson^tts Pl-fegident 
of the United States, arid 1ke people found in ' him 1 'a leader, 
as fearless as he was patriotic, in his first message 'to 
Congress, December 8;i820', itttariguage of*' extreme mod- 
eration, he called public attention' to tihe J United States Bank, 
and expressed himself ^unfavorable^ to its ^continued exist- 
ence. He said: : -- • •* v'- 1 '-- ' *• i! r ~'*' l ' : > "" :i - "'"•" 
' -■•' "The charter'of theBttnk of 4bd'IMted Smteb 1 expires in 
1836, and its stockholders will probably apply for & v re$eWal 
of theiri privileges. In osrder •to* avdid the evils resulting 
frbm • prebipitjuftcy • iii a measure? involving Bueh important 
principles, and such deep pecuniary interests, I feel th&t 
I cannot, in justice to the parties' interested, fcdor Boon 
present it to the deliberate consideration of the 5 legislature 
and the people. Both the oonfsiitu'tionaiity and expediency 
of the law creating this bank are well questioned by a 


large portion of our fellow citizens; and it must be admitted 
by all that it has failed in the great end of establishing a 
uniform and sound currency." 

The bank immediately began preparations for war. 
Through its branches and its control over State banks, its 
power extended into every part of the country. Millions of 
dollars (belonging, as it subsequently appeared, to depositors 
And stockholders) were squandered for the purpose of 
corrupting the people. Statesmen, Congressmen, brawling 
politicians, editors, all succumbed to its influence, very much 
in the same way as they are seen bowing to the power of 
the National Banks at the present day. After a careful 
survey of the field and a thorough canvass of Congress, it was 
determined by the bank that a renewal of its charter should 
be applied for during the session of Congress immediately 
preceding the next general election in 1832. The bill passed 
Congress by a majority of eight in the Senate and twenty- 
two in the House. As was expected, it was returned with 
the President's veto, on the 10th of July, 1832* The contest 
was then transferred to a wider field and carried on with 
excessive virulence. . The money power everywhere went to 
work to defeat Japkson. In Philadelphia, for example, 
"the bai& would .order th$ business men. to hold public 
meetings in its behalf in order that it might ascertain who 
were its friends, and who were courageous enough to stand 
by the government in its efforts, to redeem the people, and 
then, in turn, would appoint plages for the . assembling of 
the different trader, in order .^hat the employers might seei 
who of their workman had opinion? winch they dared 
maintain."* The masses, however, rallied to the support of 
the President, and, the capacity of the Amerifian people for 
self-government was triumphantly vindicated. President 

•From Speech of Hon. W. D. KeUey, at Indianapolis, Aug., 1875. 


Jackson was re-elected, defeating Mr. Clay by a vote of 22S 
to 49 in the electoral college. Upon examination it wiH be 
found that the principles involved in the contest between 
General Jackson and the United States Bank are precisely* 
identical with those which underlie the impending congest 
between the people and the National Banks. The* .subject 
is, therefore, worthy, of more than a passing notice; Benton, 
in his "Thirty Years in the United States Senate," in com- 
menting upon some errors of Mons. de Tocqueville w in 
relation to the Bank of the, United States, the President and 
the people," gives .a clear and comprehensive analysis of 
the principles and purposes involved in the contest, from 
which we quote as fojlows: 

"This passage* was the grand feature of the inessage,. 
rising above precedent and judicial decisions, going back to- 
the Constitution and the foundation of party on principle;, 
and risking a contest at the commencement of his adminis- 
tration, which a mere politician would have put off to the 
last. The Supreme Cburt had decided in favor of the 
constitutionality of the institution; a democratic Congress,, 
in chartering a second bank, had yielded the question, both 
of constitutionality and expediency. Mr. Madison, in sign- 
ing the bank charter in 1816, yielded to the authorities 
without surrendering his convictions. But the effect was 
the same in behalf of the institution, and against the Consti- 
tution, and against the integrity of party founded on princi- 
ple. It threw -down the great landmark of party, and yielded 
a power of construction which nullified the limitations of 
the Constitution, and left Congress at liberty to pass any 
law which it deemed necessary to- carry into effect any 
granted power. The whole argument for the bank turned 
upon the word c necessary' at the end of the enumerated. 



powers granted to Congress; and gave rise to the first 
division of parties in Washington's time — the federal party 
being for tfie construction which would authorize a national 
bank; the democratic party (republican, as then called,) 
being against it. 

"It was hot merely the bank which the democracy opposed,, 
but the latitudinariari construction which would authorize 
it, and winch would enable Congress to substitute its own 
will in otjier cases for the words of the Constitution, and do 
what it pleased under the plea of 'necessary' — a plea under 
which they would be left as much to their own will as under 
the 'general welfare' clause. It was the turning point 
between a strong and splendid government on one side, 
doing what it pleased, and a plain economical government 
on the other, limited by a written Constitution. The con- 
struction was the main point, because it made a gap in the 
Constitution through which Congress could pass any other 
measures which it deemed to be 'necessary;' still there were 
great objections to the bank itself. Experience had shown 
such an institution to be a political machine, adverse to free 
government, mingling in the elections and legislation of the 
country, corrupting the press, and exerting its influence in 
the only way known to the moneyed power — by corruption. 
General Jackson's objections reached both heads of the 
case — the unconstitutionality of the . bank and its inexpedi- 
ency. It was a return to the Jeffersonian and Hamiltonian 
times of the early administration of General Washington, 
and went to the words of the Constitution, and not to the 
interpretations of the administrators for its meaning. 

"Such a message, from such a man — a man not apt to look 
back when he had set his face forward— electrified the 
democratic spirit of the country. The old democracy felt 
as if tbey were to see the Constitution restored before they 


died — the young, as if they were summoned to the recon- 
struction of the work of their fathers. It was evident that 
a great contest was coming on, and the odds entirely against 
the President. On the one side, the undivided phalanx of 
the federal party (for they had not then taken the name of 
whig); a large part of the democratic party, yielding to 
precedent and judicial decision; the bank itself, with its 
colossal money power — its arms in eveiy State by means of 
branches — its power over the State banks-— its power over 
the business community — over public men who should 
become its debtors or retainers — its organization under a 
single head, issuing its ord,ers in secret, to be obeyed in all 
places and by all subordinates at the same moment. Such 
was the formidable array on one side: on the other side a 
divided democratic party, disheartened by division, with 
nothing to rely upon but the goodness of their cause, the 
prestige of Jackson's name, and the presidential power; — 

• 4 t 

good against anything less than two-thirds of Congregs on 
the final question of the re-charter; but the risk to run of 
liis non-election before the final question came on. 

"Under such circumstances it required a strong sense of 
duty in the new President to commence his career by risking 
such a contest; but he believed the institution tq be uncoi*- 
stitutional and dangerous, and that it ought to cease to exist: 
and there was a clause in the Constitution — that Constitution 

• • ... ' ••••:■<• • ■ -.; ::■'.- • .•■'■•' 

which he had sworn to support — which commanded him to 
recommend to Congress, for its consideration, such measures 
as he should deem expedient and proper. Under this sense 
of duty, and under the obligation of this oath, President 
Jackson had recommenced to Congress the npn-renewal of 
the bank charter, and the substitution of a different fiscal 
agent for the operations of the government — if any such 
agent was required. And with his accustomed frankness, 


and the fairness of a man who has nothing but the public 
good in view, and with a disregard of self which permits no 
personal consideration to stand in the way of a discharge of 
a public duty, he made' the recommendation six years before 
the expiration of the charter, and in the first message of his 
first term; thereby taking upon his hands such an enemy as 
the Bank of the United States, at the very commencement 
of his administration. That such a recommendation against 
rach an institution should bring upon the President and his 
supporters, violent attacks, both personal and political, with 
arraignment of motives as well as of reasons, was naturally 
to be expected; and that expectation was by no means 
disappointed. Both he and they, during the seven years that 
the bank contest (in different forms) prevailed, received from 
it— from the newspapers and periodical press in its interest, 
and from the public speakers in its favor of every grade — 
an accumulation of obloquy, and even of accusation, only 
lavished upon the oppressors and plunderers of nations — a 
Verres, or a Hastings." *•''■*• 

u He impunged neither the integrity nor the skill of the 
institution, but repeated the objections of -the political school 
to which he belonged, and whidh Were as old as Mr. Jeffer- 
son's cabinet opinion to President Washington, in the year 
1701, and Mr. Madison's great speechin the House of 
Representatives m the same year. He^i therefore, made no 
attack upon the bank, either upbn its existence, its character, 
or any oiie of its rights. On the other 'hand, the bank did 
attack President Jackson, Under the lead of politicians, and 
for the purpose 'of breaking him down. The facts were 
these: President Jackson had coriimunicated his opinion to 
Congress in December; 1829, against the renewal of the 
charter; near three years afterwards, on the Oth of January, 
1832, while the charter had yet above three years to run, 



and a ne^v Congress to be elected before its expiration, and 
the presidential election impending; — (General, Jackson and 
Mr. Clay the candidates)— the memorial of the president 
and directors of the bank was suddenly presented in the 
Senate of the United States, for renewal jQf its. charter. 

"Now, how came that memorial to be presented at a time 
so inopportune? so premature, so. inevitably .mixing itself 
with the presidential election, and so encroaching, -upon the 
rights of the people, in snatching the question out of their 
hands, and haying it decided by a Congress not elected for 
the purpose — and to the usurpation of the rights of the 
Congress elected for the purpose? How came all these 
anomalies? all these violations of right, decency and propri- 
ety? They came thus: the bank and its leading anti-Jackson 
friends believed that the institution was stronger than the 
President — that it could beat him in the election^— that it 
could beat him in Congress (as it then stood), and carry the 
charter— driving him upon, the { veto power, and rendering' 
him odious if he used it, and disgracing him if (after what 
£e had said) he di<i not. This was the opinion of the leading 
politicians friendly ,to the. twk, and inimical to the Presi- 
dent |&ut the hank had a class of friends in Congress also 
friendly to Gen, Jackson; and between these two classes 
•i there wajs vehement opposition of opiniop on the point of 
( moving for the new , charter. , It. .was found impossible, in 
coinmunicatiops between Washington and Philadelphia, 
then slc-w ,a.nd ungertain, in stage coach conveyances, over 
.miry roads and frozen waters, tP come to conclusions on the 
, difficult point Mr. Bijddje. and the directors were in doubt, woulcl not do. tq. move. £n the matter, unless all the 
friends of the hank in. Congress a^ted together. In this, 
^tate of uncertainty,, (general Cadwallader, of Philadelphia, 
jfriend and confidant of Mr.JBidfiie, and his usual envoy in 


all the delicate bank negotiations or troubles, was sent to 
"Washington to obtain a result; and the union of both wings 
of the bank party in, favor of the desired movement. He 
came, and the mode of operation was through the machinery 
of caucus — that contrivance by which a few govern many. 
The two wings being of different politics, sat separately, one 
headed by Mr. Clay, the other by Gen. Samuel Smith of 
Maryland. Tl^e two caucuses disagreed, but the democratic 
being the smaller, and Mr. Clay's strong will dominating 
the other, the resolution was taken to proceed, and all bound 
to go together." * * 

"The prudential counsels of such men as Mr. Dallas did 
not prevail; political counsels governed; the bank charter 
was pushed — was carried through both Houses of Congress 
—dared the veto of Jackson — received it — roused the people 
— and the bank and all of its friends were crushed. Then 
it affected to have, been attacked by Jackson; and Mons. de 
Tocqueville has carried that fiction into history, with all the 
imaginary reasons for a groundless accusation, which the 
bank had invented. 

"The remainder of this quotation from Mons. de Tocque- 
ville is profoundly erroneous, and deserves to be exposed, to 
prevent the mischiefs which his book might do in Europe, 
and even in America, among that class of our people who 
look to European writers for information upon their own 
country, lie speaks of the well informed classes who rallied 
round the bank; and the common people who had formed 
no rational opinion upon the subject, and who had joined 
General Jackson. Certainly the great business community, 
with few exceptions, comprising wealth, ability and educa- 
tion, went for the bank, and the masses for General Jackson; 
but which had formed the rational opinion is seen by the 
event The 'well informed* classes have bowed not merely 


to the decision, but to the intelligence of the masses. They 
have adopted their opinion of the institution — condemned it 
— repudiated it as an c obsolete idea;' and of all of its former 
advocates, not one now exists. All have yielded to that 
instinctive sagacity of the people, which is an overmatch for 
book-learning; and which being the result of common sense, 
is usually right; and being disinterested, is always honest. 
I adduce this instance — a grand national one — of the suc- 
cumbing of the well informed classes to the instinctive 
sagacity of the people, not merely to correct Mons. de 
Tocqueville, but for the higher purpose of showing the 
capacity of the people for self-government. The rest of the 
quotation, c the independent existence — the people accus- 
tomed to make and unmake — startled at this obstacle — 
irritated at a permanent institution— attack in order to shake 
and control;' all this is fancy, or as the old English wrote 
it, fantasy — enlivened by French vivacity into witty theory, 
as fallacious as witty." * * 

"Now, while Mons. de Tocqueville was arranging all this 
fine ecomium upon the bank, and all this censure upon its 

adversaries, the whole of which is nothing but a French 

■ • -f. •■■* ' -•■■.>• • • ■ • * > . ' 

translation of f the bank, publications of the day, for itself 

and agahist President Jackson— nluring all this time there 

was a process going on in the Qqngress of the United States, 

by which it was proved that the bank was then insolvept, 

and. living from day to day. upon expedients; and getting 

hold of property and money by contrivances which the law 

would qualify as swindling—plundering its own stockholders 

— and bribing individuals, institutions, and members of 

legislative bodies, wherever it cOuld be done. Those fine 

notes., of which he speaks, were then without solid value. 

The salutary restraint attributed to its control over local 

banks was soon exemplified in its forcing many of them into 


complicity in its crimes, and all into two general suspensions 
of specie payments, headed by itself. Its solidity and its 
honor were soon shown in open "bankruptcy — in the dishonor 
of its notes — : the violation of sacred deposits — the disap- 
pearance of its capital — the destruction of institutions con- 
nected with it — the extinction of fifty-six millions of capital 
(its own, and that of others drawn into its vortex) ; — and the 
ruin or damage of families, both foreign and American, who 
had been induced by its name, and by its delusive exhibi- 
tions of credit, to invest their money in its stock. Placing 
the opposition of President Jackson to such an institution 
to the account of base and personal motives — to feelings of 
revenge because he had been unable to seduce it into his 
support — is an error of fact manifested by all the history of 
the Case; to say nothing of his own personal character. He 
was a senator in Congress during the existence of the first 
national bank, and was against it; and on the same grounds 
of unconstitutionality and of inexpediency. He delivered 
his 1 opinion against this second one before it had manifested 
any"hdstility to him. His first opposition was abstract — 
againpt the institution — without reference to its condtfct; he 
knew nothing agam&t it then, and neither said, or insinuated 
anything* against iu Subsequently,' When misconduct was 
discovered, he charged it; and 'openly and responsibly. 
Equally unfounded is the insinuation in another place, of 
subserviency to local banks; He, the instrument of local 
banksj he who- eouid not be made the friend, even, of the 
great bank itself; who was all his life a hard money man — 
an bpposer of all banks — the denouncer of delinquent banks 
in his own State; whft, with one stroke of his 'pen, in the 
recess of Congress, and against its will, in the Summer of 
1^86, struck all their 1 liote^ from the list of land office pay- 
ments! and whose last message to Congress, and in his 


farewell address to the people, admonished them earnestly 
and affectionately against the whole system of paper money 
(bank currency) — the evils of which he feelingly described 
as falling heaviest upon the most meritorious part of the 
comniuuity, and the part least able to bear then* — the 
productive classes." 

The United States Bank continued its war upon the 
administration until the last, moment of its existence. Its 
charter expired by limitation in 1836, but it was entitled to 
two years in which to wind up its affairs. Instead of prepar- 
ing to close up its business it resorted to new and desperate 
measures to prolong its powers. In January, 1836> a bill 
was " snaked " through the legislature of Pennsylvania, by 
means of bribery and corruption, entitled "An Act to repeal 
the State tax, and to continue the improvement of the State 
by railroads and canals, and for other purposes;'* and; under 
the vague^ generality of "other purposes," was found * 
charter for the United States Bank, adopting it as a State 
Bank. The people of Pennsylvania were; astounded,. 'apd 
met in masses to denounce (he act and demand ita repealy 
and at the next session of the legislature an, investigation 
was ordered; but, as is usual in such cases, it caifte to nothing. 
Rotten and corrupt as the institution subsequently proved to 
be, it went on for several years, and exerted great influence 
in the commercial and political affairs of the .country. The 
twq general .suspensions of specie payments, headed by the 
United States Bank, referred to in the foregoing extracts 
from Benton, were the suspensions of 1837 and 1&39, in the 
latter of which the bank closed its doors upon Hs ; creditors 
October 9th, 1839, never really to open them again. A report 
of its affairs was made by a committee of stockholders, and 
disclosed, to quote again from Benton, " such an exhibition of 
waste and destruction, and of downright plundering and 


criminal misconduct, as was never seen*before in the annals 
of banking. Fifty-six and three-quarter millions of capital 
out of eighty-two and one-quarter millions, (including its 
own of thirty-five,) were sunk in the limits of Philadelphia 
alone; for the great monster, in going down, had carried 
many others along with her ; and, like the strong man in 
scripture, slew more in her death than in her life. Vast was 
her field of destruction-r-extending all over the United 
States — and reaching to Europe, where four millions sterling 
of her stock was held, and large loans had been contracted. 
Universally on all classes the ruin fell — foreigners as well as 
citizens — peers and peeresses, as well as the ploughman and 
the wash-woman — merchants, tradesmen, lawyers, wards and 
guardians ; confiding friends who came to the rescue ; de- 
ceived stockholders who held on to their stock, or purchased 
more; the credulous masses who believed in the safety of 
their deposits, and in the security of the notes they held — 
all — all saw themselves the victims of indiscriminate ruin. 
An hundred millions of dollars was the lowest at which the 
destruction was estimated; and how such ruin could be 
worked, and such blind confidence kept up for so long a 
time, is the instructive lesson for history; and that lesson the 
report of the stockholders' committee enables history to give. 
From this authentic report it appears that from the year 1830 
to 1836 — the period of its struggles for a re-charter — the 
loans and discounts of the bank were about doubled — its 
•expenses trebled. Near thirty millions of these loans were 
not of a mercantile character — neither made to persons in 
trade or business. * * To whom were they made? 
To members of Congress, to editors of newspapers, to brawl- 
ing politicians, to brokers and jobbers, to favorites and 
connections; and all with a view to purchase a re-charter, or 

to enrich connections and exalt himself, (Nicholas Biddle, 


President of the Ba#k.) The importance of the destruction 
of the United States Bank cannot be overestimated. In 
no other way could the government have been rescued from 
the domination of the money power, which was sparing no 
pains to subvert the liberties of the people. John Randolph 
warningly said: "Charter a bank with thirty-five millions of 
capital; let it establish and learn its power; and then find, if 
you can, means to * bell the cat.' It will be beyond your 
power; it will overawe your Congress, and laugh at your 
laws." His words were fully verified. Even Clay, who had 
said, in 1811, "I conceive the establishment of this bank 
(National Bank) as dangerous to the safety and welfare of 
this republic," and Webster, who had declared his hostility 
to bank currency repeatedly, as "one of the greatest of 
political evils," and "a contrivance for oheating the laboring 
classes of mankind," were both dragooned into the support of 
the United States Bank, in its application for a renewal of 
its charter; and all this power over the monetary and political 
affairs of the country was developed by the bank while it 
was yet in its infancy and rotten, financially, to the core. 

We have dwelt at some length upon th0 subject of the 
United States Bank, ljecause the country is now* undergoing: 
a similar ordeal. The money power is seeking to again 
secure control of the monetary and political affairs of the 
country through the instrumentality of the. National Banks. 
The monster, is now hydra-headed. Its , political tools of 
both parties, in and out of Congress, pretend to be in favor 
of specie circulation — of "hard money," *' honest money,'* 
etc. It is a mere pretense. If they were honestly for " hard 
money," and opposed to " paper money,? their first step- 
would be to suppress the paper money of the banks, because, 
of all forms of paper money, that is the worst and most 
dangerous. Benton, the great champion of hard money, 


could tolerate United States Treasury notes, and even voted 
for a bill authorizing their issue; but, unlike these hypocrit- 
ical champions of hard money of the present day, he left no 
one in doubt in regard to his views upon the question of 
banks of issue. In his speech, on the Divorce of Bank and 
State, in 1837, he said: "Banks of circulation are banks of 
hazard and of failure. It is an incident of their nature. 
Those without circulation rarely fail. That of Venice has- 
stood seven hundred years; those of Hamburg, Amsterdam, 
and others, have stood for centuries. The Bank of England, 
the great mother of banks of circulation, besides an actual 
stoppage of a quarter of a century, has had her crisis and 
convulsion in average periods of seven or eight years, for 
the last half century— in 1783, '93, '97, 1814, '19, '25, '36— 
and has only been saved from repeated failure by the pow- 
erful support of the British government, and profuse supplies 
of exchequer bills. Her numerous progeny of private and 
joint stock banks of circulation have had the same convul- 
sions; and not being supported by the government, havfr 
sunk by hundreds at a time. All the banks of. the United 
States are banks of circulation; they are all subject to the 
inherent dangers of that class of banks, and are y besides, 
subject to new dangers peculiar to themselves^ From the 
quantity of their stock held by foreigners, the quantity of: 
other stocks in their hands, and the current foreign balance 
against the United States, our paper system (bank currency) 
has become an appendage of that of England. . * * • The 
power of a few banks over the whole presents a new feature of 
danger in our syitem. It consolidates the banks of the whole 
Union into one mass, and subjects them to one fate, and that 
fate to be decided by a few, without even knowledge of the 
rest. (This was strikingly illustrated by the almost general 
suspension of the National Banks in 1873.) An unknown 


divan of bankers sends forth an edict which sweeps over 
the empire, crosses the lines of States with the facility of a 
firman, prostrating all State institutions, breaking up all 
engagements, and leveling all laws before it. This is a kind 
of consolidation which the genius of Patrick Henry had not 
even conceived. But while this firman is thus potent and 
irresistible for prostration, it is impotent and powerless for 
resurrection. It goes out in vain, bidding the prostrate 
banks to rise. A veto power intervenes. One voice is 
sufficient to keep all down; and thus we have seen one word 
from Philadelphia* annihilate the New York proposition for 
resumption and condemn the many solvent banks to the 
continuation of a condition as mortifying to their feelings 
as it is injurious to their future interests. Again from the 
mode of doing business among our banks — using each 
others notes to bank upon, instead of holding each other to 
weekly settlements, and liquidation of balances in specie, 
* * our banks have all become links of one chain, the 
strength of the whole being dependent on the strength of 
each. A few govern all. Whether it is to fail, or to resume, 
the few govern; and not only the few but the weak. A few 
weak banks fail; a panic ensues, and the rest shut up; many 
strong ones are ready to resume; the weak are not ready, 
and the strong must wait. Thus the principles of safety* 
and the rules of government, are reversed. The weak 
govern the strong; the bad govern the good; and the 
insolvent govern the solvent. This is our system, if system 
it can be called, which has no feature of consistency, no 
principle of safety, and which is nothing i>ut the floating 
appendage of a foreign and overpowering system." Who 
can doubt as to where Jackson and Benton would stand 
to-day, if they were alive, in regard to the issue now 
pending, whether the government and people of the United 

•bee page 150. 


States shall use United States Treasury notes, or National 
Bank notes, nominally redeemable in gold, for their 
circulating medium? It was impossible in Jackson's time 
for the administration to suppress State banks of issue, 
so deeply had they become rooted in the structure of 
American s6ciety, but everything possible was done to 
curtail { their power for mischief. The first step taken in 
this direction wa& the publication, July 11, 1836, of the 
famous "specie circular," ordering agents for the sale of 
public lands to take nothing in payment but specie. This 
circular was based on a law passed in 1816, requiring the 
Secretary of the Treasury to take nothing but specie, Treasury 
notes, or the notes of specie paying banks. The notes of 
eastern banks at this time were sent West for a "good circu- 
lation," and " coon-box banks " were set up in the Western 
States, which issued notes in easy loans to land speculators.* 
The title to land was passing rapidly to speculators, and the 
treasury wias being filled with worthless paper. Ten millions 
of bank currency of this sort was arrested by the circular on 
its way to the land office at Washington. The money power 
was highly indignant, and Congress, then as now its suppli- 
ant tool, at its next session passed a bill rescinding the 
circular, but it waft not signed by the President and failed 
to become a law. This led to the establishment of the 
Independent Treasury system, of which more will be said 
hereafter. The number of specie basis banks in existence 
during this period were as follows: 

Year* Humbert Tears. Humber. Years. Number. 

1820.. ..30? 1835 55$ 1838,... 663 , 

1830 330 1836 567 1839. . . .840 

1834.... 506 1837 634 1840.... 901 

The country was flooded with a depreciated currency, 
based on "Hard money," and commercial crashes and money 

"♦History of American Currency. ' 


panics occurred with almost as much regularity as the ebb 
and flow of the tides. 


In the latter part of 1836 several large failures occurred 
in Great Britain. This was the beginning of a crisis which 
convulsed both Europe and America. Early in May one 
bank in New York City and three in Buffalo failed. On 
the 10th of May all the banks in New York suspended 
specie payments, under a law passed by the legislature 
allowing them to suspend for one year. The banks through- 
out the country soon followed their example. The distresses 
of the year were aggravated by a failure of the wheat crop. 
The New York banks being required by law to resume May 
10, 1838, contracted their circulation as rapidly as possible. 
It was reduced over $12,000,000, or one-half, during the 
year 1837. The banks of New England were hi a bad 
condition, the best of them having only $1 in specie to 
redeem $11 in notes. A meeting of bank delegates in New 
York was called for November 27, 1837, to confer in regard 
to resumption, but the Ignited States Bank refusing, the 
convention did not meet. The New York Banks resumed 
on,the 10th of May, 1838, ancj. nearly all the. banks throughout 
the country soon followed, at least nominally, except those 
of Philadelphia, Towards the end of.. Abe year the Bank of 
England again became involved in trouble, producing the 

usual effect in America. 

■ • i ■ .i . . 

CRASH OF: 1839. 

On the 10th of October, 1839, the Bank of the "United 
States closed its doors, and was followed by nearly all the 
banks in the South and West. The banks in New York and 
New England made a show of holding out, but to no pur- 
pose. According to Sumner, 343 put of 850 banks closed 


entirely, and 62 partially, and the government lost over 
#2,000,000 in deposits. 

crash of 1841. 

An attempt was made to resume specie payments in 1841. 
But a run was made on the United States Bank, which had 
again opened, and it was compelled to finally close Februaiy 
4, 1841. This led to another general suspension, followed 
by great distress.* Specie payments were not again resumed 
until March, 1842. 

During all these years of banking on the specie basis 
system, banking operations had been carried on in the most 
reckless manner, without regard to personal integrity, or the 
laws of banking. Every possible device was resorted to by 
banks to put their notes in circulation, in such a way as 
would prevent their speedy return for redemption. Judge 
Kelley, in an able speech on the subject of banking, 
delivered at Indianapolis, in August, 1875, thus felicitously 
describes the manner in which this was frequently done: 

"Do you know where the phrase 'carpet-bagger' came 
from? The younger men of our day think it was invented 
to describe a man from the North who went South and got 
an office. Oh, no; not at all. • The older members of my 
audience will attest the truth of what I say when I state that 
the phrase 'carpet-bagger' arose from the fact that nearly 
every specie basis bank had its carpet-bagger — a fellow it 
sent with notes by the carpet-bag full into some distant State 
to get them into circulation there. If he could not buy 
cattle, corn, hogs or something else in which there might 
be a profit, he was to enter into a treaty with the carpet- 
bagger or other officer of some bank out there for an 
exchange of notes. For instance: The Frogtown bank — 
for I am told there were banks located occasionally in 

. *H*w tfeii dtttrets was relieved In Pennsylvania, see page 44. 


almost impenetrable swamps, and in those days, you most 
remember, there were no telegraphs and but few railroad* 
— the fellow from Frogtown would get way out into Skunk- 
town, another almost inaccessible place, and he woulfl effect 
an exchange of ten, twenty, or thirty thousand dollars of 
Frogtown bank notes for a like amount of Skunktown bank, 
notes, and the Skunktown bankers would put off the Frpgj 
town notes on their customers, and the Frogtown bankers^ 
would put off the Skunktown bank notes on tjieirs, and thus 
they would go on with this legitimate business to their 
common advantage. I am giving you a historic fact when, 
I tell you that I first became acquainted with that term in 
designating those fellows who were traveling from one out- 
of-the-way place to another with a carpet-bag full of notes to- 
exchange, so that the notes put in circulation in Skunktown, 
couldn't find their way back to Frogtown, because the- 
people in Skunktown didn't know where Frogtown was, andL 
the people in tYogtown didn't know where Skunktown was- 
— and if they did they couldn't get there; the people in one 
place couldn't get to the other to get the specie on which, 
the notes were based. Then after the bank at Frogtown. 
had paid out the Skunktown notes, the bank at Frogtown 
would refuse to receive the Skunktown note.s, but it would 
send the holder, who was its debtor, around the corner to a. 
broker, who would buy them at seven or nine per cent, 
discount, and then the broker and the bank would divide 
the proceeds of this gold basis transaction. That is a speci- 
men of what was going on all over the country." 

In referring to this period, in the same speech, Judge 
Kelley forcibly says: "It is usual to speak of the great 
crisis of 1837, but from 1832 to 1843 wag one unbroken, 
period of individual suffering, resulting frorn, the alternating, 
expansions and contractions of a banking system based on 


what it could not get, and could not have retained if it had 
got — gold coupled with permission to issue notes and lend 
money deposited for safe keeping." 

In 1840 the Independent Treasury act was passed, which 
took from the banks the custody of the funds of the govern- 
ment. This act excited great indignation amongst the banks 
and their tools, and the next year, a new administration 
coming into power, Harrison having been elected President,, 
the first step taken by Congress was to repeal it. It was 
re-enacted, however, in 1846, and Remained in force until 
1861, when it was suspended to enable the Secretary of the 
Treasury to deposit the funds of the government with " specie 
paying banks." (The Secretary of the Treasury was about; 
to negotiate a loan of $150,000,000 from the banks of New 
York, Boston and Philadelphia, and the Independent Treas- 
ury act was suspended at their instance, so as to enable them 
to retain their gold and pay the government in bank cur- 
rency; but the Secretary of the Treasury unexpectedly 
required the loan to be paid in specie, and, after that, there 
were no "specie paying banks" left in which to deposit 
government funds.) 

The stimulus of the tariff of 1842, a great demand for 
breadstuff s from abroad, the introduction of foreign capital, 
the discovery of gold in California, and other causes com- 
bined to carry the country through from 1841 to 1857 
without a commercial crash or money panic. 

CRASH OP 1857. 

In 1857, however, the people of Great Britain were over- 
taken by another of their periodical crises, which, as usual,, 
involved the banks of the United States. The Ohio Life 
and Trust Company failed August 24, 1857, with liabilities 
to the amount of $7,000,000. Sumner says, "at this period 



no rule seems to have governed issues save to keep one-third 
of the circulation in specie, and in some States even this 
dwindled down to one-tenth or one-twelfth. Such a rule, 
however, is entirely fallacious, as any other arbitrary rule of 
reserve must be, and it proved in the time of trial that there 
was no strength to endure any shock:" The New York 
banks, as an example of the contraction which followed, 
curtailed their loans from $116,000,000, August 29, 1857, to 
$94,500,000, November 28, 1857. The banks of Philadel- 
phia, Washington, Baltimore, and interior towns, suspended 
in September, and those of New York, Boston and of the 
country generally, in October. Stocks fell 40 or 50 per 
cent., and 20,000 persons were thrown out of employment 
in New York City within a fortnight.* But it is unnecessary 
to go into details. It was the same old story over again. 
The people were accused of " extravagance," " over produc- 
tion," etc., and after "confidence" had been restored by the 
Sheriff, the banks started afresh. 

suspension op 1861. 
In the beginning of 1861, when the great Rebellion broke 
out, the number of banks in the United States was about 
1,600, with a circulation of over $200,000,000. Of this circu- 
lation, about three-fourths belonged to the Northern States. 
The specie reserve of the banks of the Northern States, kept 
on hand for the purposes of redemption, amounted to proba- 
bly some $60,000,000. The necessities of the government 
becoming urgent, two loan acts were passed by Congress, 
during the extra session of 1861, one approved July 17th 
and the other August 5th. By the act of July 17th Congress 
authorized loans to the amount of two hundred and fifty 
millions of dollars, in bonds running twenty years, at not 
over 7 per cent, interest; in 7-30 notes runnning three years; 

•Sumner, page 188. 


or fifty millions of the amount could, at the discretion of 
the Secretary, be issued in the form of Treasury notes, 
payable on demand, without interest.* The act of Congress 
of August 5th authorized the Secretary of the Treasury to 
issue 6 per cent, bonds, running twenty years, for the purpose 
of funding the Treasury notes, etc., and also suspended the 
provision of the sub-Treasury act of 1846, "so far as to 
allow the Secretary of the Treasury to deposit any of the 
moneys obtained on any of the loans now authorized by law, 
to the credit of the United States, in such solvent specie 
paying banks as he may select." Then, to quote from 
Spaulding's Financial History of the War, "the banks in 
New York, Boston and Philadelphia most patriotically came 
forward and made arrangements in several negotiations 
with Secretary Chase to loan the government $150,000,000 
. under the provisions of the two loan acts passed at the extra 
session. Of this sum $105,000,000 was apportioned to the 
associated banks of New York, payable in installments. 
The banks were in good condition, * , * and the loan to the 
government was made with the expectation that the money 
would be checked out under the direction of the Secretary, in 
pursuance of the sixth section (suspending the sub-Treasury 
act) above referred to. The Secretary of the Treasury 
refused to use the discretionary power conferred upon him 
)>y that section, and would not check on the banks for the 
expenses of the war, so that current bank notes could be 
paid or balances settled through the clearing house, but 
insisted that the banks should pay the money loaned into 
the sub-Treasury in gold or gold Treasury notes. * * The 
banks having been committed to making the loans, and 
having made partial advances on account of the same, were 
obliged to complete the loan, notwithstanding the Secretary 

These notes (known afterwards as old dehiaii'd notes) were subsequently made 
a full legal tender and circulated at par with gold. See Chapter VI. 



of the Treasury deemed it incompatible with his views of 
duty, and the traditions of the sub-Treasury law to use such 
banks as disbursing agents of the government, even under the 
extraordinary exigency under which the loans were made." 
From this it appears that when the banks " most patriotically 
came forward" to lend the government the sum of $150,- 
000,000, they confidently expected that they would be per- 
mitted to exchange bank currency for the bonds of the 
government, and in effect to become factors between the 
government and the people, in exchanging the bonds of the 
government for the products of industry. Had this arrange- 
ment been carried out, it is not difficult, in the light of sixjty 
years experience with the specie basis banking system, to 
conjecture what would have been the result. The banks 
would have taken the loans of the government as fast as 
they were offered, and inflated their circulation to a corres- 
ponding degree. Sooner or later the inflation would have 
ended in a commercial crash and money panic; the banks 
would have suspended specie payments as usual, and the 
people would have found themselves with some hundreds of 
millions of dollars of worthless or depreciated paper on their 
hands — in a state of bankruptcy. Secretary Chase undoubt- 
edly became entangled in 'the toils of the money po^er, but 
his action in this particular, in refusing to take anything but 
specie from the banks on account of their loan of $150,00(^- 
000, was a fortunate circumstance, which led to important 
results. When urged to check upon the banks, instead of 
requiring them to pay specie, he said, "however harmless or 
beneficial it might be, if confined to the New York banks, 
it would inevitably result in a general payment and receipt 
for public dues of bank notes, which in turn would. lead, to 
expansion, which in turn would terminate in suspension and 
vast injuries to the sound banks."* 

•Letter of J . E. Williams to Hon. S. P. Chase. 


The banks accused the Secretary of the Treasury of acting 
in bad faith with them, not only in the matter of requiring 
them to pay specie, but in continuing to issue Treasury notes 
(demand notes under the act of July 17, 1861) after he had 
given assurances to the contrary, and a general suspension 
of specie payments took place on the 28th of December, 
1861. A prominent banker* in speaking of this period says: 
*'Even with all these unfavorable circumstances surrounding 
them (the banks), it was an encouraging fact observed by 
those who were anxiously watching the practical operation 
of this great and novel experiment, that, while the circula- 
ting notes in the country were restricted, the disbursements 
of the government for the war were so rapid, and the con- 
sequent internal trade movement was so intense, that the 
coin paid out upon each installment of the loan came back 
to the banks, through the community, in about one week. 
The natural effect of this general commercial activity upon 
the circulating medium being to quicken its flow. After 
taking the third amount of .fifty millions by the associated 
banks, those in New York who had at that time paid in of 
their proportion over eighty millions in all found themselves 
in this position: 
Their aggregate coin, which on the 17th of August, before 

the first payment into the Treasury, was $49,733,990 

Was on December 7th. 42,318,610 

A reduction of only. . r . $7,415,380 

and the other two pities in like proportion." 

In the latter part of 1861 gold began to flow towards 
Europe. This, together with the issue of demand notes, 
caused the specie reserve of the banks to diminish rapidly. 
The drain upon the New York banks in December went 
on at the following rate: 

♦Letter of Geo. S. Coe to E. G. Spaulding, Financial History of the War. 


December 7, 1861, the banks had in specie $42,300,000 

" 14, " " " 39,000,000 

44 21, " " 44 36,800,000 

44 28, * " " 29,300,000 

After a final conference with Secretary Chase, in which 
he refused to abandon the course he had thus far pursued, 
the banks decided that it was expedient to suspend specie 
payments, and accordingly, as already mentioned, a general 
suspension took place on December 28, 1861. From this 
time on the specie in the New York banks began to increase 
again, and March 8, 1862, was $30,000,000. 

The State banks continued to circulate their notes until 
after the National Banks were put in operation, when they 
were driven out of circulation by taxation. The National 
Banking bill became a law on the 25th of February, 1863, 
and on the 3d of March following an act of Congress was 
passed imposing a tax of one per cent, each half year, on a, 
graduated scale, of State bank circulation, according, to the 
capital stock of each bank. This was done for the purpose 
of getting the State banks of issue out of the way of the 
National Banks, and proved successful. Thus, after an 
eventful career of over half a century, during which they 
had inflicted incalculable injury, and suffering upon tfre 
American people, the specie basis t>anks pi issue, organised 
under State authority, passed away, nqt in a merited storea. 
of public indignation, but quietly and stealthily at the com- 
mand of the money power, to enable it to erect in their 
stead a more powerful and dangerous development of the 
same system of banking. : ' 


The National Banking system was planned shortly after 
Secretary Chase entered upon the duties of his office, and 
was recommended by him in his first annual report to Con- 


gress, December 10, 1861. It was found impossible to put 
the system into operation soon enough to meet the necessities 
of the government, and it became necessary to issue Treas- 
ury notes (greenbacks.) There is abundant reason to believe 
that the instigators of the National Banking system were in 
no particular hurry to have it put into operation. As the 
circulation of the National Banks was to be based on gov- 
ernment bonds, it became an object to these conspirators, 
chief among whom was the Hon. John Sherman, United 
States Senator from Ohio, to so shape legislation as to 
depreciate the paper of the government and enable them to 
secure the bonds necessary to establish the National Banking 
system at the lowest possible figure. The National Banking 
bill, therefore, was not pressed until 1863. It was then foisted 
upon the country at a time when National Banks could render 
no possible service to either government or people — in fact, 
were a disadvantage, for their circulation differs in no 
material respect from the circulation of specie basis banks 
of issue, and is a breeder of inflation. The National Banking 
system was conceived in fraud, and its promoters, who 
found it to their advantage to first depreciate by legislation 
and then decry, as they are still doing, the paper of the 
government, were more dangerous, because more subtle 
enemies of the government, than Jefferson Davis and all his 
hosts. The last step in the scheme, p'r.ined by Secretary 
Chase and certain capitalists and politicians, is now in 
process of consummation. We refer to the retirement of 
the greenback and the resumption of specie payments, 
January 1, 1879. When this is accomplished the National 
Banks will hold the purse strings of society, and, by monop- 
olizing the whole of the circulating medium of the country, 
by which all property in the country — homes, lands, debts 
and credits, personal and real estate of all descriptions — are 


valued, will render the whole community dependent upon 
them. John Randolph predicted, and his prediction was 
verified, that if a National Bank was established with a 
capital of $35,000,000, it w r ould "overawe Congress and 
laugh at its laws." Now we have 2,000 National Banks 
with a capital of nearly $400,000,000. Benton characterized 
the unity of interest of the old State banks of issue as "a 
consolidation of a kind which the genius of Patrick Henry 
had not even conceived." The National Banking system con- 
stitutes "a consolidation" besides which the one denounced 
by Benton is a mere pigmy. Hamilton when he sought 
to found a strong government, based on an aristocracy of 
wealth, and to that end urged the establishment of a United 
States Bank modeled on the British system, never dreamed 
of such a consolidated power as that now constituted by 
2,000 National Banks, modeled on that (the British) system. 

But, apart from the dangerous power over the property 
and political affairs of the country, which such a system 
confers upon a comparatively small class of people, why 
should all other classes be compelled to pay the banking 
class interest on $400,000,000, more or less, of paper money 
based on bonds of the government, for which the people are 
responsible, when they can have a better circulating medium, 
without interest, based on precisely the same security? 

The history of the National Banking system can be more 
clearly set forth in connection with the history of the legal 
tender acts, passed during the war, and with that will form, 
the subject of the next chapter. The details of the system 
will be duly explained in a subsequent chapter (Chapter VH.) 




Money, as has been fully explained, is an important 
element in the production and distribution of wealth in all 
its forms. Without it production is slow and laborious, and 
the distribution of the products of industry difficult and 
expensive. Hence the necessity of an abundance of money 
l)ased on sound principles — that is money that is free to 
obey the natural laws of trade, and not subject to the control 
of private corporations, as is the case with bank currency — 
to fill the channels of circulation. With a sound currency 
in circulation the production and accumulation of wealth 
would go on gradually and steadily, and commercial crashes 
and money panics would be unknown. Individuals would 
succeed or fail, as now, but it would be through natural 
causes. That a people can carry on commercial operations 
of great magnitude for centuries, by means of an enlightened 
system of money, without being visited once by such crises 
and convulsions as have marked the history of Great Britain 
and the United States, since the adoption of the specie basis 
(banks of issue) system of money, is fully demonstrated by 
the history of the Venetians,* and the experience of other 
European nations in more recent times. The weakness of 
the specie basis system has been most signally illustrated, 
however, in times of war, when great activity in both 
production and distribution became absolutely imperative. 
In the war with France, from 1793 to 1815, Great Britain 
was obliged to abandon a medium of exchange based on 

•See Chapter IV. 



specie altogether. By means of irredeemable paper money" 
she was enabled to carry on successfully one of the most 
tremendous wars of modern times, and at its close the 
people of Great Britain were, individually and collectively, 
prosperous. Ignoring the teachings of experience she waded 
back through individual "bankruptcy and ruin to the old 
system, and has had her commercial crashes and money 
panics since with the same regularity as before. If paper 
money is found to be so invaluable in the production and 
distribution of the products of industry, under the most 
disadvantagous ckcumstances, in time of war, what is to 
hinder it from being equally invaluable in time of peace, 
when no uncertainty in regard to its ability to represent 
value can attend its use? That the use of paper money 
during war is a matter of compulsion, is the merest sophistry. 
During the Revolutionary war, when Continental money,, 
which can hardly be said to have been based on anything,, 
began to grow worthless, Congress declared that those who 
refused to take it should be regarded as public enemies. 
The public smiled, and barbers papered their shops with it.* 
Paper money, however, undoubtedly becomes an acknowl- 
edged necessity during war especially in countries whose 
medium of exchange belongs to the specie i basis system. 
In Great Britain business affairs in times of peace have to 
be conducted alniost entirely, as we have seen,f by means of 
devices of the credit system, on account of the limited 
amount of money in ch'culation, and when an emergency 
arises, requiring great rapidity of production and distribu- 
tion, both government and people find themselves without 
any adequate means to accomplish the ends desired. 

When the Rebellion broke out in 1861, the people of the 
United States were in the enjoyment of unusual prosperity. 

*Sumner's History of American Currency. \Bee v*fc* <U 


The crops had been more than ordinarily good, and the coun- 
try generally was rapidly recovering from the crash of 1857. 
The cotton crop of 1860 had reached the enormous amount 
of 5,387,052 bales (of 400 lbs. each.) 

The state of the banks and the currency from 1857 to 186$ 
was as follows: 

Circulation. Deposits. - . . Loans. Specie. 

1857— $214,700,000 $230,309,000 $684,400,000 $58,300,000 

1858— 155,200,000 185,900,000 583,100,000 74,400,000 

1859— 193,300,000 259,500,000 657,100,000 104,500,000 

1860— 207,100,000 253,800,000 691,900,000 83,500,000 

1861— 202,000,000 257,200,000 696,700,000 87,600,000 

1862— 183,700,000 296,300,000 646,300,000 1025,100,000 

1863— 238,600,000 393,600,000 ' 648,600,000 101,200,000 

Preparations for war were begun by the Federal Govern- 
ment on a scale of great magnitude, with an empty Treasury. 
The real and personal property of the country, according to 
the census report of 1860, amounted to $16,159,616,068, or, 
leaving out the States in rebellion, to $10,957,450,961. /The 
people of the States which sustained the Federal Govern- 
ment possessed ample resources and were inspired by a 
sincere feeling of patriotism. The only question, therefore, 
was as to the means by which the ' resources of the people 
could be rendered available to the government. It could 
of course be done only through the instrumentality of a 
medium of exchange.* Taxation was impracticable at the 
outset, because the government did not possess the' ma- 
chinery for laying and collecting taxes, and funds were 
required at once; and besides the amount of money in 
circulation was insignificant as compared with the wants of 
the government. There was manifestly but on© of two 
courses to pursue. Either to adopt the machinery of the 
hunks and through them exchange the credit of the govern- 
ment iov the products of industry, or doaY Say^O^j ^iSSfc. ^fe. 

*£e*d la this connection page 62, also pagea 10 > 1\. k , ft wriTA*. 




people by issuing legal tender Treasury notes, based on and 
representing the wealth of the country and redeemable in 
the revenues of the government. Neither course, however, 
was pursued, or rather the Secretary of the Treasury 
attempted to use both plans in part, and with the most 
wretched results. 


During the extra session of Congress in July and August, 
1861, two important loan acts were passed, which are 
deserving of special notice, one approved July 17th and the 
other August 5th. By the act of July 17th the Secretary of 
the Treasury was authorized to borrow $250,000,000, for 
which he was authorized to issue coupon bonds or registered 
bonds or Treasury notes in such proportions of each as he 
might deem advisable. The bonds were to bear interest not 
exceeding seven per cent, per annum, payable semi-annually, 
and to run for twenty years, when they would be redeemable 
at the pleasure of the United States; and the Treasury notes 
were to be issued in denominations of not less than $50, 
payable three years after date, with interest at 7 3-10 per 
«ent, payable semi-annually, and exchangeable at any time 
for twenty years six per cent bonds. Or, at his option, the 
Secretary of the Treasury might issue $50,000,000 of the 
above loan in Treasury notes, payable on demand, in denom- 
inations of not less than ten dollars each, without interest 
and made payable for salaries and other dues from the 
United States Treasury (afterwards known as old demand 
notes); or he might issue Treasury notes, payable in one 
year from date, bearing interest at 3 65-100 per cent per 
annum, exchangeable at any time in sums of $100, or 
upwards, for three year Treasury notes bearing 7 3-10 interest 
By the act of August 5th, which was supplementary to the act 
of July 17th, the Secretary of the Treasury was authorized 



to issue bonds bearing interest at six per cent, per annum, 
payable after twenty years from date, which, in denomina- 
tions not less than $500, might be exchanged for Treasury 
notes bearing 7 3-10 per cent, interest. The act of July 17th, 
fixing the denomination of the Treasury notes without 
interest (demand notes) at not less than ten dollars was 
modified so as to fix the limit at not less than five dollars, 
and these notes (demand notes) were made receivable in 
payment of public dues. By the sixth section of this act 
the Sub-Treasury act of 1846 was " suspended . so far as to 
allow the Secretary of the Treasury to deposit any of the 
moneys obtained on any of the loans now authorized by 
law, to the credit of the Treasurer of the United States, in 
such solvent specie paying banks as he may select? 
By an act of Congress approved February 12, 1862, the 
Secretary of the Treasury was authorized to issue $10,000,000 
of Treasury notes, payable on demand, not bearing interest, 
in addition to the $50,000,000 of like notes authorized by 
acts of July 17th and August 5th, 1861, which should bf 
deemed part of the loan of $250,000,000 authorized by said 
acts. And by the act of March 17, 1862, it was enacted 
that these demand notes ($60,000,000 in all) shall, in addi- 
tion to being receivable in payment of duties on im- 
ports, be receivable, and shall be lawful money and a 
legal tender^ in like manner and for the same purposes 
and to the same extent as the notes (greenbacks) authorized 
by the act approved February 25, 1862. These demand 
notes were the only notes issued during the war that were 
made a full legal tender, that is, receivable for all public 
dues (including duties on imports) and a tender for private 
debts. After they were made a full legal tender they 
circulated at par and went up with gold to a premium of 
$2.85, or in other words it cost $2.85 in greenbacks to buy 
a dollar in gold or demand notes. 


From these acts of Congress it appears that Secretary- 
Chase was clothed with the most ample powers to borrow 
money. He immediately proceeded to New York and, 
on the 9th of August, 1861, held a consultation with a 
number of leading bankers and capitalists of the cities 
of New York, Boston and Philadelphia, whom he met there 
by appointment. It was suggested on the part of the banks, 
that the banks of the North should form an "organization 
that would combine them into an efficient and inseparable 
body, for the purpose of advancing the capital of the country 
upon government bonds in large amounts, and through their 
clearing house facilities and other well known expedients, 
to distribute them in smaller sums among the people in a 
manner that would secure active co-operation among the 
members in this special work, while in all other respects 
each bank could pursue its independent business. This 
suggestion," says Mr. Coe, from whom we quote,* "met the 
hearty approbation of the assembled company, and arrested 
the earnest attention of the Secretary. At his request it 
was presented to the consideration of the banks at a meeting 
called for that purpose at the American Exchange Bank on 
the following day, and was so far entertained as to secure 
the appointment of a committee of ten bank officers, to give 
it form and coherence. The committee convened at the 
Bank of Commerce, whose officers zealously united in the 
effort, and a plan was reported unanimously. It may be 
found, with the names of the committee, in the Bankers' 
Magazine of September, 1861. This report was cordially 
accepted and adopted by the banks in New Yorkj those in 
Boston and Philadelphia being represented at the meeting 
and as zealously and cordially : united in the organization. 
It was greatly desired to include also the banks of the West, 

"Letter of Geo. S. Coe, Esq. : Spaulding's Financial History of the War. Apx. p. tt. 


but it was found impracticable to secure the co-operation of 
the State banks of Ohio and Indiana, and the State banks 
of Missouri, the only other organization under a compacted 
system, were surrounded by combatants. It was at once 
•unanimously agreed that the associated banks of the three 
cities would take fifty millions of 7 3-10 notes at par, with 
the privilege of an additional fifty millions in sixty day*, 
And a further amount of fifty millions in sixty more, making 
$150,000,000 in all, and offer them to the people of the 
icountry at the same price, without change." 

The amount of specie held by the banks of the three cities 
At this time was as follows : 

Banks of New York $49,733,990 

" Boston 6,665,929 

" Philadelphia 6,765,120 


The Treasury notes could not be delivered at once, as time 
was required for their preparation and execution. It was 
manifestly impossible, therefore, for the banks to advance 
the several amounts of the loan, in specie, without danger of 
exhausting their reserve. The Sub-Treasury act, as we have 
seen, however, had been suspended, evidently at the instance 
of the banks, with a view to enabling them to handle the 
bonds and securities of the government, in return for bank 
currency. " Accordingly," says Mr. Coe, from whom we 
have just quoted, " it was at once proposed to the Secretary 
that he should suspend the operations of the Sub-Treasury act 
in respect to these transactions, and following the course of 
commercial business, that he should draw checks upon some 
one bank in each city representing the association, in small 
sums as required, in disbursing the money thus advanced. 
By this means his checks would serve the purpose of a cirou- 


lating medium, continually redeemed, and the exchange of 
capital and industry be best promoted. * * To the 
astonishment of the committee, Mr. Chase refused;" It was 
urged by the bankers that the Sub-Treasury act had been 
suspended for this very purpose, but Mr. Chase thought 
differently, declaring that it had no such meaning or intent. 
Another subject of discussion between the banks and the 
Secretary was the issue of demand notes. A small amount 
of these notes had already been emitted, and a resolution 
requesting the Secretary to refrain from issuing any more, 
until all other means had been exhausted, had been adopted 
by the associated banks. Mr. Coe says that the Secretary 
gave assurances of his acquiescence in this suggestion, but 
refused "to openly pledge himself not to exercise a power 
conferred by law," and "that with this understanding the 
banks began their work, paying into the treasury in coin 
$150,000,000, in sums at the rate of about $5,000,000 at inter- 
vals of six days." The rapid disbursements by the govern- 
ment, and the intense activity of the movements of trade, as 
we have seen,* brought the coin nearly all back to the banks 
within a week after it was issued, so that in December the 
banks of New York, after paying to the government over • 
$80,000,000, found their specie reserve reduced only from 
$49,733,990, August 17th, to $42,318,619, December 7th. 
The banks undoubtedly expected that sooner or later Secre- 
tary Chase could be induced to accede to their plan, but> as 
he continued to issue the demand notes, it became apparent 
in the latter part of December, 1861, after the banks had 
paid in a large* portion of their loan, that the Secretary was 
determined to adhere to his own course; and after a confer- 
ence, in which he expressed himself to that effect, the banks 
decided that it was expedient to suspend specie payments: 

•See page 157. 


forthwith, and did so on the 28th of the month. The balance 
of the loan was paid by the banks principally in Treasury 
notes, and was finally closed on the 3rd of February, 1862. 

The patriotism of the banks oozed out as soon as they 
found that they could not control Secretary Chase in their 
interests. After they had succeeded in paying the greater 
part of their loan without any material diminution of their 
specie, there was manifestly no good reasor why they should 
suspend specie payments, other than on account of the 
inherent weakness of the specie basis system. Their circu- 
lation did not exceed $140,000,000, and their specie reserve 
was unusually large, about $60,000,000. The suspension 
complicated matters greatly. With irredeemable bank paper 
and demand notes of the government promising to pay specie^, 
when it had no specie, filling the channels of circulation, 
gold of course began to command a premium.* Had Secre- 
tary Chase adopted the plan of the banks, the securities of 
the government could unquestionably have been handled by 
them during the first part of the war with advantage to the 
government. In that event the government should have issued 
no paper currency. But the result would undoubtedly have 
been disastrous in the end. The expenses of the government 
soon reached $2,000,000 a day. To meet the necessities of 
the government, the banks would have been obliged to inflate 
their circulation to an alarming extent. The first financial 
breeze that sprung up would have occasioned a panic; the 
banks would have been obliged to suspend, as they had done 
nine times before during their brief existence, and most 
probably, too, at a critical period of the war, which could 
not fail to have resulted in great distress and general 
demoralization, to the great peril of the government Sec- 
retary Chase seemed to apprehend the danger of adopting 

*A table showing the monthly range of gold, from 1868 to 1876, will be found ia 
the Appendix. 


the plan suggested by the associated banks, but in all other 
respects he proved himself utterly incompetent as a Minister 
of Finance. When he renounced the machinery of the 
banking system, instead of urging upon Congress the neces- 
sity of adopting at once the full legal tender money system, 
and devising a judicious system of taxation, he recom- 
mended the establishment of the National Banking 
system. The inconsistency of his action in this respect 
cannot fail to strike the reader, when it is considered that the 
National Banking system differs in no essential particular 
from the State Banking system, which he had just rejected, 
except that its notes instead of being secured by State bonds, 
as in the case of the banks of New York, were to be secured 
by bonds of the Federal Government. 

When Congress convened, December 2, 1861, the para- 
mount question was that relating to the finances of the 
Federal Government. The people of the Northern States 
possessed unlimited resources, were animated by feelings of 
devoted patriotism, and were willing to assume any burdens 
in the shape of taxation, or otherwise, that Congress might 
deem necessary to impose for the legitimate prosecution 
of the war for the preservation of the Union. It simply 
devolved upon Congress to devise the ways and means to 
render the resources of the nation available to the govern- 
ment. As this could be done only through the instrumen- 
tality of a medium of exchange, it was the first duty of 
Congress to see that the channels of trade were supplied 
with a sufficient amount of money to develop the producing 
forces of the nation to their utmost capacity, and enable the 
people to respond to the requirements of the government. 
It was manifest that the banks could not be relied upon for 
that purpose with any degree of certainty or safety. There 
was, therefore, no other alternative but for Congress, by 


virtue of the sovereign prerogative inherent in the people, 
and as their representative duly authorized by the Consti- 
tution, to issue full legal tender Treasury notes, not bearing 
interest. The reason of this is obvious. The chief end 
desired was to create a circulating medium of exchange^ 
and this end could be accomplished only by issuing Treas- 
ury notes in a form that would enable them to perform the 
functions and serve the purposes of money. 



And here it is proper to call attention to the difference 
between an ordinary Treasury note, bearing interest and not 
a legal tender, and a full legal tender Treasury note, not 
bearing interest. They are both based on the wealth and 
credit of the nation, but there the similitude ends. A 
Treasury note, bearing interest and not a legal tender, is 
simply an evidence or security of indebtedness, and differs 
from a bond only in form. It does not possess the attributes, 
nor can it perform the functions, of money. A creditor 
of the government may be obliged to take it at its face value 
or wait an indefinite time for his money; but, as it is not a 
legal tender, no one else is obliged to receive it at the value 
inscribed on its face. By its nature it is nothing more than 
a security in which to invest money, and is not designed or 
calculated to serve 'the purposes of a medium of exchange. 
The fact that it bears interest is a disadvantage 'to it as a 
medium of exchange, because in the ordinary transactions 
of life people cannot stop to reckon interest every time it 
changes hands; and the fact that it is a partial legal tender 
(payable for certain dues or taxes to the government) leads 
those who have such duties to pay to decry its value in order 
that they may purchase it at a depreciation. It is on the 


same principle that the greenback is decried by the bullion- 
ists, because they have gold to sell, and it is to their advan- 
tage to buy greenbacks (with gold) as cheaply as possible. 


On the other hand a Treasury note, not bearing intefest^ 
cannot be used as a security in which to invest money. 
Like money (made of gold or silver) it is of no use to the 
possessor until it is parted with.* If only a partial legal 
tender (receivable for certain dues to the government), it is 
to the interest of many, as already mentioned, to decry its 
value, in order to obtain it as cheaply as possible. If the 
government obliges its creditors to take it at its face value, 
and it is not a legal tender in payment of debts, no one else 
is obliged to receive it at the same value, or indeed to 
receive it at all. While it is then the same as money as 
between the government and its creditor, it is quite a differ- 
ent thing between the creditor and the public. This is 
manifestly unjust. Treasury notes are issued by the people 
in their collective capacity, through the agency of the gov- 
ernment, and, unless simply intended as an interest bearing 
security, not designed to perform the functions of money, 
ought clearly to be made a legal tender for private debts as 
well as public dues, otherwise it places it in the power of 
the public to repudiate individually what they have done 
collectively, and the people do not all stand on the same 
platform with respect to the government or to each other. 
The Treasury note, therefore, in this form (a legal tender 
and not bearing interest) ' constitutes a peculiar form of 
indebtedness or credit, which serves all the purposes of a 
mediunS of exchange and enables the government to draw 
upon the resources of the people in advance of taxation* 

•See page 30. 


bearing equally upon every individual in the nation. The 
bullionists and their organs, in their efforts to decry the 
legal tender Treasury note and deceive the public, are 
constantly asserting that it costs the government nothing 
more than the expense of printing, and is, therefore, worth- 
less. This is not a mere fallacy — it is a willful perversion 
of the truth. Every dollar of legal tender paper money 
issued by the government costs the people precisely one 
dollar's worth of property or labor. A dollar greenback is 
put in circulation by the government for value received in 
property or services; it passes from hand to hand, com- 
manding a dollar's worth of property or services every time 
it is used as a medium of exchange; until finally it is 
returned to the Federal Treasury in the shape of taxation or 

On the 5th of December, 1861, the Committee of Ways 
and Means was organized as follows: 

Thaddeus Stevens, of Penn., Chairman. 
Justin S. Morrill, of Vt. John S. Phelps, of Mo. 
E. G. Spaulding, of N. Y. V. B. Hoeton, of Ohio. 
Erastus Corning, of N. Y. Samuel Hooper, of Mass. 
Horace Maynard, of Tenn. J. L. N. Shatton, of N. Y. 

secretary chase's report. 
On the 10th of December, 1861, the Secretary of the Treas- 
ury submitted his annual report to Congress. He set forth 
in strong terms the weakness and disadvantages of the 
banking system of the country, and expressed the belief that 
the emission of bills of credit by state banks was in violation 
of the spirit, if not the letter, of the Constitution. He said: 
"It has been well questioned by the most eminent statesmen 
whether a currency of bank notes, issued by local institutions 
under State laws, is not in fact prohibited by the national 
Constitution. Such emission certainly iatta m\Xi\TL>tafc ^Ycfc*> 


if not within the letter, of the constitutional prohibition of 
the emission of 'bills of credit' by the States, and of the 
making by them of anything except gold and silver coin a 
legal tender in payment of debts. However this may be, 
it is too clear to be reasonably disputed, that Congress, under 
its constitutional power to lay taxes, to regulate commerce, 
and to regulate the value of coin, possesses ample authority 
to control the credit circulation which enters so largely into 
the transactions of commerce, and affects in so many ways 
the value of coin. In the judgment of the Secretary, the 
time has arrived when Congress should exercise this power. 
* * Two plans for effecting this object are suggested. 
The first contemplates the gradual withdrawal from circula- 
tion of the notes of private corporations, and for the issue, in 
their stead, of United States notes, payable in coin on demand, 
in amounts sufficient for the useful ends of a representative 
currency. The second contemplates the preparation and 
delivery, to institutions and associations, of notes prepared 
for circulation under national direction, and to be secured, as 
to prompt convertibility into coin, by the pledge of United 
States bonds and other needful regulations." 

The Secretary then proceeds to say, that the first of these 
plans was partially adopted by Congress during the extra 
session in July and August, in authorizing the issue of 
$50,000,000 of demand notes, and after suggesting some of 
the advantages and disadvantages of the plan, concludes by 
declaring "that he feels himself constrained to forbear 
recommending its adoption." The principal features of the 
second plan are presented by the Secretary as follows: 
"First, a circulation of notes bearing a common impression 
and authenticated bv a common authoritv: Second, the re* 
demption of these notes by the associations and institutions 
to which they may be delivered iox \&«u& a , m^\3rcvt&,^* 


security of that redemption by the pledge of United States 
stocks, and an adequate provision of specie." After eulogi- 
zing the plan,* he adds: "The Secretary entertains the 
opinion that if a credit circulation in any form be desirable, 
it is most desirable in this." 



The Committee of Ways and Means appointed a sub- 
committee, consisting of Messrs. Spaulding, Hooper and 
Corning, on the proposed National Bank currency, the issue 
of Treasury notes and bonds, and the mode of raising means 
to carry on the war. The chairman of the sub-committee, 
Mr. Spaulding, prepared a National Bank currency bill by 
the end of the month (December), and also drafted a legal 
tender Treasury note section, to be added to the bank bill, 
for the issue of Treasury notes to be used while the bank 
bill was being put in operation throughout the country. 
In his Financial History of the War, Mr. Spaulding says 
that, " upon more mature consideration and further examin- 
ation, he came to the conclusion that the bank bill, contain- 
ing sixty sections, could not, with the State Banks opposed 
to it, be passed through both Houses of Congress for several 
months, and that so long a delay would be fatal to the 
"Union cause. * * He, therefore, changed the legal 
tender section intended originally to accompany the bank 
bill into a separate bill, with alterations and additions, and 
on his own motion introduced it into the House by unani- 
mous consent on the 30th of December, 1861." The bill 
was duly considered by the Committee of Ways and Means, 
and, on the 7th of January, 1862, was reported from the 
committee to the House. 

The original bill offered by Mr. Spaulding authorized the 
Secretary of the Treasury "to issue on \i\fe <sre&& <& ^a 

•See Chapter VII. on National Banks. 


United States $100,000,000 of Treasury notes, not bearing 
interest, payable generally, without specifying any place or 
time of payment, and of such denominations as he may 
deem expedient, not less than five dollars each; and such 
notes, and all other Treasury notes payable on demand, not 
bearing interest, that have been heretofore authorized to be 
issued, shall be receivable for all debts and demands due to 
the United States, and for all salaries, dues, debts and 
demands owing by the United States to individuals, corpo- 
rations and associations within the United States; and shall 
also be lawful money, and a legal tender in payment of all 
debts, public and private, within the United States, and 
shall be exchangeable in sums not less than one hundred 
dollars, at any time, at their par value, at the Treasury of 
the United States, * * for any of the six per cent, 
twenty years coupon or registered bonds which the Secretary 
of the Treasury is now, or may hereafter be, authorized to 
issue; and such Treasury notes shall be received the same 
as coin at their par value, in payment for any bonds that 
may be hereafter negotiated by the Secretary of the Treas- 
ury; and such Treasury notes may be re-issued from time to 
time, as the exigency of the public service may require." 

This bill was no sooner made public, than delegations of 
bankers from New York, Boston and Philadelphia hurried 
to Washington to oppose it. They organized in a format 
manner by the selection of a chairman (S. A. Mercer, of 
Philadelphia), and invited the Finance Committee of the 
Senate, and the Committee of Ways and Means of the 
House, to meet them at the office of the Secretary of the 
Treasuiy, January 11, 1862. The invitation was accepted. 
At the meeting which followed, the bankers spoke in oppo- 
sition to the bill, and submitted the following plan for 
raising money: 


w 1; A tax bill to raise $125,000,000 over and above duties 
on imports by taxation. 

2. Not to issue any demand Treasury notes, except those 
authorized at the extra session in July last. 

3. Issue $100,000,000 Treasury notes at two years, in sums 
of five dollars and upwards, to be receivable for public dues 
to the government, except duties on imports. 

4. A suspension of the Sub-Treasury act, so as to allow 
the banks to become depositories of the government of all 
loans, and to check oh the banks from time to time as the 
government may want money. 

5. Issue six per cent, twenty year bonds, to be negotiated 
by the Secretary of the Treasury, and without any limita- 
tion as to the price he may obtain for them in the 

6. That the Secretary of the Treasury be empowered to 
make temporary loans to the extent of* any portion of the 
funded stock authorized by Congress, witih power to hypoth- 
ecate such stock, and if such loans" are not paid at maturity, 
to sell the stock hypothecated for the best market pric* 
that can be obtained." ' • : 

Mr. Spaulding says that "these propositions having been 
read, the Secretary and Finance Committees of the Senate 
and House expressed themselves favorable to the first prop- 
osition to raise by taxation $125,000,000 a year, over' and 
above duties on imports. It Will be observed that this plan 
did not include the national ourrency bank bill recommended 
by the Secretary of the Treasury in his annual report, and 
was not, therefore, in this respect satisfactory to him. The 
meeting was somewhat conversational in character, but 
there appeared to be a general dissent by the Secretary and 
committees from all other propositions. * * The only 
remarks that I (Mr. Spaulding) can find reported as being 



by any member of the committees of the Senate and 
3 are in the New York Tribune^ January 13, 1862, in 
ance as follows: » 

The Sub-Committee of Ways and Means, through Mr* 
aiding, objected to any and every form of " shinning" by 
ernment through Wall or State streets, to begin with;, 
jected to the knocking down of government stocks to- 
venty-five or sixty cents on the dollar, the inevitable result 
I throwing a new and large loan on the market, wit h out 
imitation as to price; claimed for Treasury notes as- 
much virtue of par value as the notes of banks which have 
suspended specie payments, but which yet circulated in the 
trade of the North; and finished with iirmly refusing to* 
assent to any scheme which should permit a speculation 
by brokers, bankers, and others, in the government securi- 
ties, and particularly any scheme which should double the 
public debt of the "country, and double the . expenses, by 
damaging die credit of. the government to the extent of 
sending it to *f shin" through; the shaving shops of New York, 
Boston ami Philadelphia. He affirmed his conviction as a 
banker and legislator, that it was the lawful policy, as well 
as the manifest, duty of the government .in; the present 
exigency, to. legalise as tender it$ fifty million istiue of 
demand Treasury notes, authorized at the extra session 
in July last, and to add to^ this stock of legal tender 
immediately, e$e.'" The conference adjourned without 
agreeing upon any plan or arrangement. The bank dele* 
gates, however, remained in,, Washington,. and held further 
consultations with Secretary Chase, extending through 
several days, which resulted in an arrangement with. him to- 
t the effect, amongst other things, that Congress should be 
urged to pass the National Bank bill, and that the amount 
of the demand notes should not be increased beyond thf 


$50,000,000 authorized by the aet of July, 1861, and afeo 
that Congress should be urged to. extend the provisions of 
the existing loan acts, so as to enable rthe Secretary of the 
Treasury to exchange interest bearing Treasury notes for 
the demand notes, not bearing. . interest, and get them out of 
the way. I 

Thus while the masses were exerting every energy to sus- 
tain the government, the money jtower wag plotting to get 
control of its finances, in order- that it. might bo enabled to 
prey upon the people in the hour of .their extremity. How 
well it succeeded will duly appeau. ■'• ; 

On the 22d of January the legal tender bill was again 
reported from the Committee of Ways and Means, with an 
additional section authorizing^tfoe Secretary of the Treasury 
to issue, on the credit of the 'United States, coupon bonds or 
registered bonds, to an anaouat not exceeding $500,000,000, 
and redeemable at the* pleaemu;a<of the goviemment, after 
twenty years: from datevandbe^ring interest at six- per cent, 
per annium, payable semi-ahnmalfliy, to! enable Okie Secretary 
ofjthe Treasury'tthe^illreaiury notes and/ftoating debt 
of ithe Unite.d .States; aad it was i made the special -order for 
the 28th day of the month. The" debate on thfef bill accord- 
ingly began on th^t day t .ap,oV was opened by Mr v $paul<£mg 
in an able argument in its favor, . Mi T.he debate, whjjc^i [CQfjtinr 
ued until the 6th day of .februarv, .^hen the bijll jp^sp^d $e 
House, with some slight, nipdificatjons, was characterized. by 
unusual ability. ,; It ha^ never before, in, the histpry of the 
government, been deemed necessary to.jssue Treasury notes, 
in the legal tender form, not bearing interest, to enable them 
to circulate as a medium of exchange and perform the func- 
tions of money, and there was naturally a great diversity, of 
opinion upon the subject. Several substitutes and amend- 
ments were offered, most of them in the interest of the 


money power. The views held by those who advocated the 
use of Treasury notes, but honestly opposed the legal tender 
feature, as an infraction of the Constitution, were embodied 
in a substitute offered by Mr. Vallandigham, and were sup- 
ported by able speeches, especially that delivered by Mr. 
Pendleton, of Ohio. Mr. Vallandigham's substitute provided 
for the same issue of notes as the original bill, but not made 
a legal tender, and instead of making them payable in coin! 
on demand, they were to be simply receivable for all public 
dues. In this particular (making them receivable for public 
dues instead of payable in coin on demand), the substitute 
was preferable to the original bill. A Treasury note, properly 
understood, is " a promise to receive" and not "a promise to 
pay,"* and making it redeemable in coin could add nothing' 
to its value, but under the circumstances was calculated only 
to depreciate ke value, because it misled the public, aspecially 
professors of political economy. The following extracts 
from the speech of the Hon. Thaddeus Stevens in support of 
the bill, will sufficiently explain the nature and character of 
the substitutes and amendments offered, and, also, of the* 
arguments employed for and against them, as .well as the 
bill itself . Mr. Stevens said: 

"The Secretary of the Treasury, in his report, recom- 
mended a scheme to produce a uniform national currency, 
and furnish a market for governnient bonds. It proposes 
that the banks shall receive their circulation from the gov- 
ernment to the amount of government bonds pledged, with 
the Treasury for their security; and that no more notes 
should be issued than the par value of such bonds, and 
should be redeemed by the banks. As a general system of 
banking in ordinary times, it might be very useful in regii- 

i * 

lating the currency, and by the sale of bonds the govern* 

Bte pages 62 A 58. 


ment might command coin. But while the banks are in 
suspension, it is not easy to. see how it would relieve the 
government. If the notes were procured it must be by 
accepting payment by the government in depreciated circu- 
lation. How would that be any better than the government's 
own notes? The security of the government is equal to that 
of the banks, and would give as much currency. To the 
banks I can see its advantage. They would have the whole 
benefit of the circulation without interest, and at the same 
time would draw interest on the government bonds from the 
time they got the notes. Now, it is very plain, that if the 
United States issued those notes direct, they would have tne 
benefit of the whole circulation. In other words, it would 
be equal to a loan, without interest, to the full amount of 
the circulation. This project, therefore, however desirable 
as a banking system, could afford no immediate relief, 
especially as it would afford no sale for additional bonds, as 
the banks have already as many as would form the basis of 
their operations. Having, as I think, shown the impossibility 
of carrying on the government in any other way, let us 
briefly notice some of the objections to it. First, is it con- 

"The power to emit bills of credit and make them a legal 
tender is nowhere expressly given in the Constitution; but 
it is known that but few of the acts which government can 
perform are specified in that instrument It would require 
a volume larger than the Pandects of Justinian or the Code 
of Napoleon to make such enumeration, whereas our Con- 
stitution has but a few pages. But everything necessary to 
carry out the granted powers of the government is not only 
implied but expressly given to Congress. If nothing could 
be done by Congress except what is enumerated in the 
Constitution* the government could not live a week. 


"The States are prohibited from making anything but 

* gold and silver coin a tender in the payment of debts;' bat 
such prohibition does not extend to Congress. The Consti- 
tution is silent as to the power of Congress over that subject. 
The whole question of the right to emit bills of credit 'by- 
Congress was considered in the convention that framed the 
Constitution. It was reported as a part of the power to 

* borrow money.' It was objected to as tending to make a 
paper currency with legal tender, and a motion was made 
to strike it out and insert an expresB prohibition. This was 
resisted, because, as Mr. Mason said, •* it could not be fore- 
seen what the necessities of the government niight at some 
time Tequire.' * The late war,' he said, ' could not have been 
earned on had Such prohibition existed.' It was finally 
agreed to strike out the express power, and not insert the 
prohibition, leaving it: to the exigencies of the times to 
determine its necessity*" * * ' 

" If constitutional, is it expedient? It is objected by the 
gentleman from Ohio that the legal tender clause would 
depreciate the notes. All admit the necessity of the issue. 
•But some object to their being made money. It is not easy 
to perceive how notes issued without being made immedi- 
ately payable in specie can be made any worse by making 
them a legal tender. And yet that is the whole argument 
so far as expediency is concerned. Other gentlemen argued 
that this would impair contracts by making a debt payable 
in otlier money than that which efcistied at * the time of the 
contract, and would so be unconstitutional. Where do 
gentlemen find any prohibition on Congress against passing 
laws impairing contracts? There is none, though it would 
be unjust to do it. But this impairs no contract. All con- 
tracts are made not only with a view to presentt laws, but 
subject to the future legislation of the country. We have 


more than once changed the value of coin. Neither otir 
.gold nor silver coin is as valuable as it was fifty years ago. 
Congress in 1853, 1 believe, regulated the weight and value 
of silver. They debased it over seven per cent, and made 
it a legal tender. Who ever pretended that that was uncon- 
stitutional? The gentlemen from Vermont [Mr. Morrill] 
and Ohio [Mr. Pendleton] think it an ex post f auto law. It 
is not wonderful that my distinguished colleague, not being 
& professional lawyer, should not be aware that the ex post 
Jacto laws prohibited by the Constitution refer only to 
crimes and misdemeanors, and not to civil contracts. The 
gentleman i;rom Ohio no doubt knew but forgot it." * * 
U I know the danger of granting to irresponsible institu- 
tions or individuals the right to issue paper currency not 
immediately convertible, because their avarice would always 
abuse the privilege and over issue. But when the govern- 
ment thus issues, the fault and the crime is theirs if they do 
not restrain it within proper bounds. Is the proposed issue 
of $150,000,000 too much? It is believed that the ordinary 
business of the country, especially now, requires a circulation 
of $400,000,000. The bank circulation has been about 
$200,000,000, with coin to the amount of $250,000,000. 
The bank paper, now in suspension, would largely disappear 
before this par paper; and during suspension, which means 
■during the war, there will be but little coin circulation. If 
the whole $150,000,000 of United States notes could be 
kept circulating, I do not think the surviving bank paper 
would furnish a sufficient currency for commercial purposes 
— some coin must be added. But it is not probable that it 
could all be kept out; much would rest in banks, in the 
pockets of private individuals, or await investment tempo- 
rarily, at least,; for a while. 
1 "But my distinguished colleague from Vermont fears that 


enormous issues would follow to supply the expenses of the 
war. I do not think any more would be needed than the 
$150,000,000. The notes bear no interest. No one would 
seek them for investment. In the rapid circulation of 
money, $100 in a year is turned so often as to purchase ten 
times its value. This money would soon lodge in large 
quantities with the capitalists and banks, who must take 
them. But the instinct of gain, perhaps I may call it 
avarice, would not allow them to keep it long unproductive. 
„4 dollar in a miser's safe unproductive is a sore disturbance.. 
Where could they invesjt it? In United States loans at six 
per cent., redeemable in gold in twenty years, the best and 
most valuable permanent investment that could be desired. 
The government would thus again possess such notes in 
exchange for bonds, and again reissue them, I have no 
doubt that thus the $500,000,000 of bonds authorized would 
be absorbed in less time than would be needed by the 
government; and thus $150,000,000 would do the work of 
$500,000,000 of bonds. When further loans are wanted, 
you need only authorize the sale of more bonds; the same 
$150,000,000 of notes will be ready to take them. 

44 1 contend that this currency will be better than any this 
country can produce. Bank notes are merely local. The 
holder of them in St. Louis, wishing to transmit to New 
York, must pay a discount of from one to ten per cent. If 
he has gold, the cost of transportation is considerable. If 
he travel, it is cumbersome. But if he has United States 
par notes, he can send them without cost all over the Union. 

" Gentlemen are clamorous in favor of those who have 
debts due them, lest the debtor should the more easily pay 
his debt I do not much sympathize with such importunate 
money lenders. But widows and orphans are interested^ 
and in tears,, lest tl^eir estate should be badly invested. I 



pity no one who has his money invested in United States 
bonds, payable in gold in twenty years, with interest semi- 

"But while these men have agonized bowels over the rich 
man's cause, they have no pity for the poor widow, the 
suffering isoldier, the wounded martyr to his country's good, 
who mn£t receive these notes without legal tender or noth- 
ing, arid Who mufct give half of it to the Shylocks to get the 
necessaries of life. Sir, I wish no injury to any, nor with 
our bill could any happen; but if any must lose, let it not be 
the soldier, the mechanic, the laborer, and the farmer. 

"Let ine restate the various projects. Ours proposes 
United States notes, secured at the end of twenty years to 
be paid in coin, and the interest raised by taxation, semi- 
annually; such notes to be money, and of uniform value 
throughout the Union. No better investment, in my judg- 
ment, can be had; no better currency can be invented. • 

"The amendment of the gentleman from Ohio [Mr. Val- 
landigham] proposes the same issue of notes, but objects to 
a legal tender; but does not proyide for their redemption on 
demand in coin. He fears our notes would depreciate. 
Let him who is pharp enough to see it instruct me how notes 
tlia.t every man must take are worth less than the same notes 
ttyat no man need take, and few would, being irredeemable 
on demand. But he doubts its constitutionality. He who 
admits our power to emit bills of credit, nowhere expressly 
authorized by the Constitution, is a sharp and .unreasonable 
doubter when fye denies tjie power to make them a legal 
tender. ' ..,.-• 

"The proposition of the gentleman, from Net* York [Mr. 
Roscoe Conkling] authorizes the issuing of seven . per- cent, 
bonds,, payable in thirty one years, tq be sold ($230,000,000 


of it) or exchanged for the currency of the banks of Boston, 
New York and Philadelphia. 

" Sir, this proposition seems to me to lack every element 
of wise legislation. Make a loan payable in irredeemable 
currency, and pay that in its depreciated condition to our 
contractors, soldiers, and creditors generally! The banks 
would issue unlimited amounts of what would become trash, 
and buy good hard money bonds of the nation. Was there 
ever such a tempation to swindle? 

"He further proposes to issue $200,000,000 United States 
notes, redeemable in coin in one year. Does not the gentle- 
man know that such notes must be dishonored, and the 
plighted faith of the government broken? No one believes 
that we could then pay them, and it would run down at 
once. If we are to use suspended notes to pay our expenses, 
why not use our own? Are they not as safe as bank notes? 
During the suspension the government would have the 
beniit of the whole circulation, without interest, until they 
were funded— that is, the interest of all we could keep out 
would accrue to the government. If the $150,000,000 were 
constantly afloat, it would be a loan to the government, 
without interest, to that amount, $9,000,000 a year. But if 
we used the suspended paper of the banks bur bonds v^duld 
bear interest from the instant we got their notes— a good 
thing for the suspended banks. Besides, government would 
have the benefit of all the lost and destroyed notes— & 
considerable item. 

"Last comes the substitute of the minority of the commit- 
tee. I look upon it as a curiosity. It proposes to issue 
United States notes, not a legal tender, bearing an interest 
of three tod sixty-five hundredths per cent., a«d fundable 
into seven and three^tenths per cent, bonds, but not' payubli 
*ond*teand,but*t the pleasure of the United State*. TWa 


gives one and three-tenths per cent, higher interest than our 
loan, and not being redeemable on demand, would fare the 
fate of all non-specie paying notes not a legal tender. But 
the ingenious minority have invented a kind of currency 
never before known — a circulation bearing interest. 
Bonds or notes intended for investments bear interest, but 
no one expects they will be used as currency; whether in 
the shape of bonds or notes they will be used only as invest- 
ments, or as pledges on which to procure loans. Suppose a 
tailor, shoemaker, or other mechanic or laborer, were to 
take one of these bills, and in a week he should wish to use 
it in market, or store, or elsewhere, he must sit down and 
calculate the interest on the days he has hud it to find its 
value. This would be rather inconvenient in a frosty day. 
This currency would make it necessary for every man to 
•carry an arithmetic or interest table with which to gauge 
ihe value of the circulating medium. Gentlemen must see 
liow ridiculous, if not impracticable, this scheme is. 

"Here, then, in a few words lies your choice. Throw 
bonds at six or seven per cent, on the market between this 
and December, enough to raine at least $600,000,000 — about 
this sum is already appropriated, $557,000,000 — or issue 
United States notes, not redeemable in coin, but fundable in 
specie paying bonds at twenty years; such notes either to be 
made a legal tender, or to take their chance of circulation 
by the voluntary act of the people. 

U I maintain that the highest sum you could 'sell your 
bonds at would be seventy-five per cent., payable in currency 
itself at a discount. That would produce a loss which no 
nation or individual doing a large business could stand a year. 

" I contend that I have shown that such issue, without 
being made money, must immediately depreciate, and would 
go on from bad to worse, I flatter myself that 1 have dem- 


onstrated, both from reason and undoubted authority, that 
such notes, made a legal tender and not issued in excess 6f 
the demand, will remain at par and pass in all transactions, 
great and small, at the full value of their face; that we shall 
have one currency for all sections of the country and for 
every class of people, the poor as well as the rich. 

"Some gentlemen are as much frightened as if this were 
an unwonted apparition, for the first time prowling forth to 
swallow the rich creditor and nurse the poor debtor. No 
nation, it is said, has ever tried anything like it." * * 

" Mi*. Chairman, let me say in conclusion that unless this 
bill is to pass with the legal tender clause in it, it is not 
desirable to its friends or to the administration that it should 
pass at all, and those who think as I do will have to vote 
against it if it shall be thus mutilated and emasculated. If 
it is to be defeated, I should be glad if we had the power 
which they have in the British Parliament — to resign our 
places on the Committee of Ways and Means and leave it 
to those who oppose this bill to mature some other measure. 
So far as I am concerned, I shall be modest enough not to 
attempt any other scheme. The Committee of Ways and 
Means have labored in the preparation of this measure 
anxiously and to the best of their poor abilities. We are 
not infallible. We do not come near it. I am but poorly 
qualified for anything of this kind. But we have given it 
our most anxious consideration, and have consulted those 
whom we believed to be the best qualified to advise us. We 
have sought to harmonize conflicting views in the substitute 
which the majority of the committee have prepared, and we 
hope it will pass. We believe that the credit of the country 
Will be sustained by it, that under it all classes will be paid 
ill money which all classes can use, and that it will confer; 
no advantage on the capitalist Over the poor laboring man* 


If this bill shall pass, I shall hail it as the most auspicious 
measure of this Congress; if it should fail, the result will be 
more deplorable than any disaster which could befall us." 

Mr. Stevens' speech closed the debate, and the bill came 
Tip for final action in the House, February 6, 1862, and was 
adopted by a vote of 93 to 59. 


On the 10th day of February, 1862, Mr. Fessenden, Chair- 
man of the Committee on Finance in the Senate, reported 
the House bill from the Finance Committee with amend- 
ments. The important amendments were as follows: 

1. That the legal tender notes should be receivable for all 
<&aims and demands against the United States of ev%ry kind 
whatever, " except for interest on bonds and notes, which 
shall be paid in coin" 

2. That the Secretary might dispose of United States 
bonds "at the market value thereof, for coin or Treas- 
ury notes? ! 

8. A new section, No. 4, authorizing' deposits in the Sub- 
Treasuries at five per cent, for not less than thirty days, to 
the amount of $25,000,000, for which certificates of deposit 
might be issued. 

4. An additional section, No. 5, "that all duties on im- 
ported goods, and proceeds of the sale of public lands," etc;, 
should be set apart to pay coin interest on the debt of the 
United States; and one per cent, for a sinking fund, etc. 

On the 12th day of February, 1862, the debate in the 
Senate was opened by Mr. Fessenden in a lengthy speech. 
A motion was made by Mr. Collamer to strike out the legal 
tender clause, which was lost. On the 14th inst. the bill, 
as amended, passed the Senate by a vote of 30 to 7, and was 
returned to the House. 



On- the 18th, Mr. Stevens reported the bill, as amended bjr 
the Senate, from the Committee of Ways and Means to the 
House, and said, " I have no purpose of considering the bill at 
this time. I desire that it shall be referred to the Committee 
of the Whole, and be made the special order for to-morrow 
at one o'clock. I hope gentlemen of the House will read 
the amendments. They are very important, and, in mi/ 
judgment, very periiicious, but I hope the House will 
examine them." 

On Wednesday, the 19th, Mr. Spaulding opened the debate 
in opposition to some of the amendmets of the Senate. We 
quote as follows : 

"Mr^hairiiian, T desire especially to oppose the amend* 
ments of the Senate which require the interest on bonds and 
notes to be paid in coin semi-annually, and which authorize* 
the Secretary of the Treasury tri sell six per cent, bonds, at 
the market price for coin to pay the interest. 

"The Treasury note bill, as reported first from the Com* 
mittee of Ways and Means as a necessary, war measure, Was 
simple and perspicuous in its terms, and easily understood. 
Tt was so plain that eveiybodiy. eouVd understand that it 
authorized the issue of $150,000,000 of legal tender /demand 
notes, to circulate as a national currency among the people 
in all parts of the .United States, and that thoy might, at any 
tinle, be funded in six j>er cent, twenty years' bonds. The 
passage of the measure in this house was hailed with satis- 
faction by the great mass of the people all over the country. 
It received the hearty endorsement of such bodies as the 
Chambers of Commerce of New York, Cincinnati, St. Louis, 
Chicago, Buffalo, Milwaukee, and other places. I have never 
known any measure receive a more hearty approval from the 


"Nearly :every amendment to the bill since it was matured 
has .rendered it more: complex and difficult of execution. I 
regret to say that some of the amendments of the Senate 
render the bill incongruous, and tend to defeat its great 
object^ namely— to prevent all forcing of the Government to 
sell its bonds in the market to the highest bidder for coin. 
It might be very pleasant for the holders ;of the seven and 
three-tenths Treasury notes and six per cent. bondB, to receive 
their interest in coin semi-annually, but very disastrous to 
th«= government to be compelled to sell its bonds, at ruinous 
rates of discount, every six months to pay them gold and 
silver, while it would pay only Treasury notes to the soldier, 
sailor, and all other creditors of the government. 

flam opposed to all thotfe amendments of the Senate 
Which make unjust discriminations between the creditors of 
tbft gpirerttoieatw : -.A soldier or sailor who performs service 
in: the army or n2Ky is a. creditor of the government. The 
man who sells food, clothings and the material of war, for 
the use, of the* army And navy, is a. creditor of the govern- 
Dfrentv » > The capitalist who holds your seven and three-tenths 
Tyf»ft8Upy note^^ioroyour six -per cent, coupon <bonds,is -a cred- 
itor of the goverpment, •. AM are creditors of the government 
QftrAn equal iocrtiog, and all 'and equally entitled to their 'pay 
b) goldtanddttver. ;■ • ■•■•• < '\\.> >■ ■ . •> . 
: "Tvaui opposed: to! all those amendments of the Senate 
which, disc riraikdte: in favor of the holders of bonds and 
notes by compelling' the go vKHmmeht to 'go into the streets 
every six month*! to< sell bonds at i the 'market price,' '-to 
purchase gold and silver. in order to pay the interest ' in coin * 
to the capitalists who now hold United States stocks and 
Treasury notes heretofore issued, or that may hold bonds 
and notes hereafter to be issued; while all persons in the 
United States (including the army and navy and all who 


supply them with food and clothing) are compelled to 
receive legal tender Treasury notes in payment of demands 
due them from the government. 

"Why make this discrimination? Who asks to have one 
class of creditors placed on a better footing than another 
class? Do the people of New England, the Middle States, 
or the people of the West and Northwest, or anywhere else 
in the rural districts, ask to have any such discrimination 
made in their favor? Does the soldier* the farmer, the 
mechanic, or the merchant ask to have any such discrimina- 
tion made in his favor? No, sir; no such unjust preference 
is asked for by this class of men. They ask for the legal 
tender note bill pure and simple. They ask for a national 
currency which shall be of eo-ual value in all parts of the 
country. They want a currency that shall pass from hand 
to hand among all the people in every State, county^city, 
town and village in the United States. They want a cur- 
rency secured by adequate taxation upon the whole property 
of the country^ which will pay the soldier, the farmer, the 
mechanic, and the banker alike for all debt due. 'They ask 
that the government shall stand upon its own responsibility^ 
its own rights, and exert its vast powers* preserve' its' own 
credit, and carry us safely through this gigantic rebellion, 
in the shortest time, and with the least possible sacrificed 
They intend to foot all the bills, and ultimately pay the 
whole amount, principal and interest, in gold and silver. 

"Who, then, are they that ask to have a preference given 
to them over other creditors of the government? Sir, it is 
a very respectable class of gfentlemen, but a olass of men 
who are very sharp in all money transactions. They are not 
generally among the producing classes — not among those 
who, by their labor and skill, make the wealth of the 
country; but a class of men that have accumulated wealth, 




men who are willing to lend money to the government if 
you will make the security beyond all question, give them, a 
high rate of interest, and make it payable in coin. Yes, sir, 
the men who are asking these extravagant terms, who want 
to be pref erred creditors, are perfectly willing to lend money 
to the government in her present embarrassments, if you will 
only make them perfectly secure, give them extra interest, 
and put your bonds on the market at the ' market price,' to 


purchase gold and silver to pay them interest every six 
months. Yes, sir, entirely willing to loan money on these 
terms! Safe, no hazard, secure, and the interest payable 
4 in coin !' Who would not be willing to loan money on Such 
terms ? Sir, the legal tender Treasury note bill was intended 
to avoid all such financiering and protect the governments 
and people who pay the taxes, from all such hard bargains. 
It was intended as a shield in the hands of the patriotic 
people of the country against all forced sales of bonds, and 
all extravagant rates of interest. » 

"The legal tender note bill is a great measure of equality. 
It proposes a currency for the people which is based upon 
the great faith of the people and all their taxable property. 
All are obliged to receive and pass it as money, and all are 
obliged to submit to heavy taxation to provide for its ulti- 
mate redemption in gold and silver. Every attempt on the 
part of any class of citizens to create distinctions and secure 
a legal preference, mars the simplicity and success of the 
whole plan. The very discrimination proposed carries on its 
face notice to everybody, that although the notes are declared 
to be * lawful money and a legal tender in payment of debts,' 
yet that there is something of higher value, that must be 
sought after at a sacrifice to the government, to pay a pecu- 
liar class of creditors to whom it owes money — a kind of 
absurdity and self-stultification which does not appear well 


on the face of the bill. It is an unjust discrimination whack 
does not appear well now, and will not look well in history. 
You will, if the Senate's amendment is adopted, depreciate, 
by your own acts, your own bonds and notes, and effectually 
destroy the symmetry and harmonious workings of the 
whole plan." 

(Mr. Spaulding, in his Financial History of the War, calls 
attention to the fact that " at the time the above remarks 
were made by him the duties on imports were, as the bill 
then stood, payable in legal tender notes; but this was after- 
wards changed in the committee of conference, making 
those duties payable in coin, so that the interest might ^be 
paid in coin, without being obliged to force the bonds on the 
market to obtain coin for that purpose.") 

During the discussion in the Committee of the Whole ast 
amendment to the Senate amendment requiring interest oa 
bonds and notes to be paid in coin, was offered by Mr. Pen* 
dleton to the effect, "that the officers, soldiers, seamen and 
marines, engaged in the military service of the United 
States,' 1 should also be paid in coin, which was not agreed to. 

On the 20th the House resumed consideration of the 
Senate amendments. Mr. Stevens closed the debate. We 
quote from his speech as follows^ ' 

^Mr. (Speaker, I have a very -few; words to say. I approach 
the subject with more depression of spirits than I ever 
before approached any question. No personal motive ©r 
feeling influences me. I hope not, at least. I have a mel- 
ancholy foreboding that we are about to consummate a 
cunningly devised scheme, which will carry great injury 
and great loss to all classes of the people throughout thi* 
Union, except one. With my colleague, I believe that no 
act of legislation of this government was ever hailed with 
as much delight throughout the whole length and breadth 


of this Union, by every class of people, without any excep- 
tion, as the bill we passed and sent to the Senate. Congrat- 
ulations from all classes — merchants, traders, manufacturers, 
mechanics and laborers — poured in upon us from ail quarters. 
The Board of Trade from Boston, New York, Philadelphia, 
Cincinnati, Louisville, St. Louis, Chicago and Milwaukee 
approved its provisions, and urged its passage as it was. 

"I have a dispatch from the Chamber of Commerce of 
Cincinnati, sent to the Secretary of the Treasuiy, and by 
him to me, urging the speedy passage of the bill as it passed 
the House. It is true there was a -doleful sound came up 
from the caverns of bullion brokers, and from the saloons of 
the associated banks. Their cashiers and agents were soon 
on the ground, and persuaded the Senate, with but little 
deliberation, to mangle and destroy what it had cost the 
House months to digest-, consider, and pass. They fell upon 
the bill in hot haste, and so disfigured and deformed it, that 
its very father would not know it. Instead of being a 
beneficent and invigorating measure, it is now positively 
mischievous. It has all the bad qualities which its enemies- 
charged on the original bill, and none of its benefits. It 
now creates money, and by its very terms declares it a 
depreciated currency. It makes two classes of money — one 
for the banks and brokers, and another for the people. It 
discriminates between the rights of different classes of 
creditors, allowing the rich capitalist to demand gold, and 
compelling the ordinary lender of money on individual 
security to receive notes which the government had pur- 
posely discredited. 

"Let us examine the principal amendments separately, 
and see their effect. The first important one (being the 
fifth) makes the notes issued under the law of July 17th a 
legal tender, equally with those authorized \yy ^c&a \s&u 


There can be but little wisdom in putting these two classes 
on an equality. The notes of July bear seven and three- 
tenths per cent, interest, and are payable in three years. 
This gives them a sufficient advantage over notes bearing 
no interest and payable virtually in twenty years, with six 
per cent, interest. Why give them this additional advan- 
tage? Simply because the $100,000,000 issued are all held 
by the associated banks, and this is their amended bill. 
They would displace $100,000,000 of this money in the 
circulation, and render it impossible to use any considerable 
amount of these United States notes as a currency. These 
notes have served their purpose. Why allow them to block 
up the market against further relief to the government? 

"The banks took $50,000,000 of six per cent, bonds, and 
shaved the government $5,500,000 on them, and now ask 
to shave the government fifteen or twenty per cent, half 
yearly, to pay themselves the interest on these very bonds. 
They paid for the $50,000,000 in demand notes, not specie, 
and now demand the specie for them. Yet gentlemen talk 
about our making other loans in these times. They are crazy 
or sleeping, one or the other, I do not know which." * * 

"The notes, by another amendment, are authorized to 
be invested in notes or bonds payable in two years, and 
bearing an interest of seven and three-tenths. One of the 
great objects was to induce capitalists to invest in six per 
cent, bonds or lose their interest, and thus to furnish a 
continually recurring currency by the sale of these six per 
cent, bonds. This provision would effectually prevent the 
funding a dollar in those bonds. They would all go in 
preference into seven and three-tenths bonds, due in two 
years, when no one believes we can pay them. 

"But this is not the worst. The tenth amendment pro- 
vides that any holder of the United States legal tender notes, 


if He have $100 and upwards, shall draw five or six per cent, 
interest on them until he choses to use them. The poor 
who have less than $100 shall draw no interest. It is plain 
that, by these two contrivances, not one dollar of these 
United States notes will ever be funded in six per cent, 

"But now comes the main clause. All classes of people 
shall take these notes at par for every article of trade or 
contract unless they have money enough to buy United 
States bonds, and then they shall be paid in gold. Who i? 
that favored class? The banks and brokers, and nobody 
else. They have already $250,000,000 of State debt, and 
their commissioners would soon take all the rest that might 
be issued. 

" But how is this gold to be raised? The duties and public 
lands are to be paid for in United States notes, and they or 
bonds are to be put up at auction to get coin for these very 
brokers who would furnish the coin to pay themselves, by 
getting twenty per cent, discount on the notes thus bought. 

"Now, in less than a year, taking the public debt at what 
my colleague makes it — I make it more — $1,200,000,000, 
what will the interest be upon it at seven and three-tenths 
per cent., for it will all center in that rate of interest? It will 
be $87,000,000, and one-half of that amount, $43,500,000, 
must be raised every six months for the paying of this 
interest, and is to be raised in coin, which nobody holds but 
the large capitalists. Does anybody suppose that they are 
going to give that coin for such notes as we are now about 
to issue, at par? They will sell the gold for what their 
conscience will allow, and they will compel the government 
to give anything they choose, unless the government con- 
sents to become dishonored. The first purchase of gold by 
the government will fix the value of these notes which we 


issue and declare to be a legal tender. That sale will fir 
their value at ten, fifteen, or twenty-five per cent, discount., 
and then every poor man, when he buys his beef, his porK, 
and! hig supplies, hiust submit to this fifteen or tweiity-fi ve 
pei 1 {sent; discount^ because you lmve said that that shall bfe 
the value of the very notes which you have made a teg&l 
tender to him, but not a legal tender to those who fix the 
Value of these very notes. Does any one believe that any- 
body but bankers and brokers fixes the depreciation of 
tfurrency? So you will thus have fixed the market value of 
yt>ur notes at seventy-five or eighty per cent., and yet they 
atre a legal tender to the poor of the country, while they 'are 
no legal* tender to those who hold the coin of the country. 

" By the original bill the Secretary of the Treasury was 
attowed to sell these bonds at their value for lawful money 
'-^that is, for these legal tender notes. But how, by the 
provisions of this bill, after the market value has been fixed 
and they are depreciated, the Secretary of the Treasury is 
authorized to go into the market and sell them for coin, irot 
at par, but at the market value therefor. Was there ever 
a more convenient contrivance got up, into which blind mice 
run, to catch them? Was ever before such a machine! got 
up for swindling the government and making the fortunes 
of the gold bullionists in one single year? 

"But as if this accumulated folly were not quite enough, 
another amendment provides that these notes, when pre- 
sented in sums not less than $ 100, may be transferred into 
seven and three-tenths notes payable in two years. Parties 
may buy these notes at a discount and put them into notes 
payable in bullion at two years, at seven and three-tenths 
interest, for that is a part of the whole system. 

"Now, sir, does any man here believe that, notwithstancf- 
ing the victories we are gaining, the government will be 


^ble to redeem these notes in two years? If not, they will 
be shoved upon the market and sold for coin at whatever 
discount may be demanded." 

Mr. Stevens also offered an amendment to pay the army 
and navy in specie, the same as the bondholders' interest in 
coin, which was voted down. The Senate amendments 
were concurred in only in part, which rendered the appoint- 
ment of a committee of conference necessary. The confer- 
ence committee appointed by the Senate consisted of Messrs, 
Fessenden, Sherman and Carlisle, and the conference com- 
mittee of the House of Messrs. Stevens, Horton and Sedg- 
wick. The conference committee were in session two or 
three days, and finally reported the bill with several altera- 
tions, the most important of which was that the duties on 
imports should be paid in coin* so as to do away with 
the necessity of forcing the bonds on the market to procure 
coin to pay interest in coin on the bonded debt of the 

On the 24th of February, 1862, the action of the confer- 
ence committee was agreed to by the House by a vote of 
97 to 22. On the 25th the Senate concurred in the action 
of the conference committee, and the same day the legal 
tender act was approved by the President.! 


Thus were the most sacred interests of the people, espe- 
cially of the producing classes — the farmer, the mechanic, 
the manufacturer and the laboring man, grossly and wickedly 
betrayed into the hands of the money power by the Senate 
of the United States. The Senate at that time was a small 
body, but twenty-four States being represented, with but 
three or four members whose ability rose above mediocrity. 

•See 6peech of Hon. Thaddeus Ftevens in the Appendix. 

tThe Legal Tender Act as finally passed will be found in the Appendix. 



The occupants pf seats once filled by statesmen, whose ability 
and eloquence had made the Senate of the United ; State* 
famous throughout the world, they became puffed up with 
ideas of self-importance, which, with the venality of the Sher- 
mans of the body, rendered them easy prey for the sharks of 
Wall street. It will be observed that the points contended f oiy 

* . - * 

so strenuously and successfully, by the conference committee 
of the Senate, which represented the sentiment of the 
majority of that body, were, in substance and effect, the 
same as those contained in the plan of the bankers, offered at* 
their meeting, which convened in Washington immediately 
after the introduction of the legal tender bill in the House.* 
That the Senate was controlled, in its action in regard to 
the legal tender bill, by improper influences is not a matter 
of conjecture, but of history* In his speech at Philadelphia,, 
January 15, 1876, Judge Kelley says: "I remember the 
grand' c '01d Commoner' (Thaddeus Stevens) with his hat in 
his hand and his cane under his arm, when he returned to 
the House after the final conference, and shedding bitter 
tears over the result. c Yes,' said he, 'we have had to yield; 
the Senate was stubborn. We did not yield until we found 
that the country must be lost or the banks be gratified^ 
and we have sought to save the country in spite of the- 
cupidity of its wealthier citizens." 

Here begins one of the darkest chapters in American 
history. It will be found that eveiy step taken by Congress 
from this on, in matters pertaining to the finances of the 
nation, has been dictated by the money power. Foreign 
capitalists, such as the Rothschilds, became deeply interested 
id the scheme of robbery inaugurated by the passage of the 
first legal tender act, and through their agents, such as 
August Belmont, banker and whilom chairman of the Demi.-* 

•See page 177. 


ocratic National Committee, have aided the money power 
here materially in controlling the policy of both of the 
great political parties. The amount stolen from the people 
during the war by the financial policy then adopted, and which 
now encumbers the nation in the shape of a bonded debt, 
payable principal and interest in gold, is estimated by such 
writers upon the subject of finance as J. S. Gibbons (contrib- 
utor to Johnson's Universal Cyclopaedia) at over one thou- 
sand millions of dollars,* to say nothing of the thousands of 
millions of which the people have been robbed indirectly, 
by means of the pernicious monetary system then foisted 
upon the country. 

The first legal tender notes (greenbacks) issued under the 
act of Congress of February 25, 1862, were issued bearing 
date March 10, 1862, and on the back of them was printed 
these words: 

.. "This note is a legal tender for all debts, public and 
private, except duties on imports and interest on the public 
debt, and is exchangeable for United States six per cent, 
bonds, redeemable at the pleasure of the United States 
after five years." 

Notwithstanding the mutilated form in which the green- 
backs were sent out by the Treasury department, they per- 
formed a marvellous work. The producing forces of the 
nation were set at work, and there was no longer any diffi- 
culty in rendering the resources of the people available to 
the government. In speaking of this period, Judge Kelley, 
in his Philadelphia speech of January last, thus graphically 
and eloquently pictures the wonderful change which followed 
the passage of this legal tender act. He says: "But the 
patriots, (Lincoln, Stevens, etc.,) to whom I have referred, 
had studied the Constitution of the United States. They 

•Letter of J. S. Gibbons : Spauldlug's Financial History oj the War. 



knew that it imposed upon them the duty of saving the 
nation. They knew that money is the sinew of war, and 
that it must be had. They knew that the Constitution 
authorized the coining of the public credit into money. 
They ' smote the rock of public credit,' and power and pros- 
perity gushed forth. 'Smote the rock of public credit!' 
What does that mean ? Why, they called into existence 
* the rag-baby !' They said to every man that would work — 
*Here are wages for you; this rag-baby will pay you.' They 
«aid to ship-owners, * unfurl your rotting sails and open your 
liatchways; we have brought you grain from the farm, carry 
it abroad to buy us clothing and arms; for our industries 
have been stricken, and we cannot provide clothing or arms 
for the army that is to sustain the Union.' The 'rag-baby' 
showered greenbacks upon them, and the ships spread their 
sails, and carried rich cargoes to foreign lands> which were 
exchanged for clothing, arms and munitions of war. Indus- 
try was rife throughout the land. The farmers, who had 
been without an adequate or remunerative market for years, 
Were getting good prices for their grain, were paying their 
debts to the local merchant, who in turn paid his to those of 
the great cities. A marvellous child was that 'rag-baby.' 
While not yet a month old, its name, 'greenback,' not yet 
familiar to the people, it lighted the fires in every forge and 
furnace of the country; it hired, ships, and bought others; it 
blockaded the whole southern coast; it rallied an army of 
75,000 men, and we soon after heard ringing through the 
streets the shout of well paid and well clad soldiers, 'we're 
coming, Father Abraham, three hundred thousand morel 
The 'rag-baby' was welcomed by every commissary, quarter- 
master and paymaster. It furnished transportation; it met 
all demands, and the American people — at least those of the 
free States—with the great war on their hands, were prosper- 


tww as they had never been before, thanks to the marvellous 
power of the * rag-baby.' * * I name it not the * rag-baby;* 
I take the derisive term from the door of the Presidential 
mansion. I cannot imply a want of respect for the constitu- 
tional legal tender money of the country, the Treasury note, 
which did all that I have attributed to the 'rag-baby.'" 

The premium on gold, which was 3£ per cent, when the 
legal tender act was passed, February 25, 1862, immediately 
began to decline, and did not go up again until the latter part 
of May. United States bonds immediately went up from 
90 to 102. 


By the fourth section of the legal tender act, the Secretary 
of the Treasury was authorized to receive deposits in the 
Sub-Treasury to the amount of $25,000,000, in sums of not 
less than $100, at five per cent, interest, with the privilege 
of drawing it out again on ten day's' notice after thirty days. 
On the 17th day of March, 1862, the authority to receive 
these deposits was increased to $50,000,000. On the 11th 
of July, 1862, it was still further extended to $100,000,000; 
and by the act of January 30, 1864, to $150,000,000, and the 
Secretary was authorized to pay as high as six per cent, 
interest. These deposits reached the sum of $120,176,196. 


By the act of March 1, 1862, the Secretary of the Treasury 
was authorized to issue to public creditors "who may be 
desirous to receive the same in satisfaction of audited and 
settled demands against the United States," certificates of 
indebtedness in sums not less than $1,000 each, payable in 
one year, with interest at six per cent. And by the act of 
TVfarch 17, 1862, this power was enlarged, so as to embrace 
checks drawn in favor of creditors by disbursing officers 


upon sums placed to their credit on the books of the Treas- 
urer. These certificates were- issued in the form of bank 
notes and circulated to a large extent as currency. The 
amount of certificates of indebtedness in circulation Novem- 
ber, 1864, was $238,593,000. 


On the 7th day of June, 1862, Secretary Chase sent a 
communication to the Committee of Ways and Means of the 
House asking for authority to issue $150,000,000 more legal 
tender Treasury notes, and that $35,000,000 of this sum 
should be of a less denomination than five dollars. On the 
11th of June a bill was reported to the House from the 
Committee of Ways and Means. The bill was made the 
special order for the- 17th inst. On that day the debate was 
opened by Mr. Spaulding in a speech in favor of the bill. 
A vote was reached June 24th, when the bill passed, sub- 
stantially as recommended by the Secretary, by a vote of 76 
to 47. 

On the 28th of June the Finance Committee of the Senate 
reported it to that body with amendments. On the 2d of July- 
it passed the Senate, as amended, by a vote of 22 to 13. The 
House refused to agree to the amendments; the farce of a con- 
ference committee was again gone through with; the report 
of the conference committee was agreed to on the 8th of 
July, and on the 1 1th the bill was approved by the President. 


Congress convened in regular session December 1, 1862. 
On the 4th Secretary Chase submitted his second annual 
report. After an elaborate review of the revenues and 
expenditures of the government, he discussed the financial 
affairs of the nation at large. He reiterated his objections 
to the State banks and declared that, as between a currency 


furnished by numerous and unconnected banks in various 
States and a currency furnished by the government, he 
unhesitatingly gave his "preference for a circulation author- 
ized and issued by national authority." 

He took issue with those who entertained the opinion that 
the rise in the price of gold was due to the redundancy of 
the currency, and supported his views with great force,* but 
it did not occur to him to suggest the true reason, viz: 
because coin was the only currency that was a full legal 
tender. He again took occasion to renew his recommenda- 
tion of the National Banking system. He said: 

"While the Secretary thus repeats the preference he has 
heretofore expressed for a United States note circulation, 
even when issued directly by the government and dependent 
on the action of the government for regulation and final 
redemption, over the note circulation of the numerous and 
variously organized and variously responsible foanks now 
existing in the country; and while he now sets forth, more 
fully than heretofore, the grounds of that preference, he 
still adheres to the opinion expressed in his last report, that 
a circulation furnished by the government, but issued 
by banking associations organized under a general act of 
Congress, is to be preferred to either." 

The amount to be provided for by Congress for the current 
year he estimated at about $300,000,000, and for the next 
fiscal year, (beginning July 1st,) $600,000,000, and recom- 
mended that the chief dependence ot the government to 
secure that amount be placed on the negotiation of bonds. 

Congress was then urged by the Secretary to repeal that 
portion of the act of Congress of February 25, 1862, which 
restricted the sale of bonds to their market price, and 

•See Report of the Secretary of the Treasury: Appendix to the Congressional 
Globe, 1862-^63. 


also the clause providing for the convertibility of bonds 
and Treasury notes, (greenbacks.) In conclusion he 
said: "The general views of the Secretary may, therefore, 
be thus briefly summed: He recommends that whatever 
amount may be needed beyond the sums supplied by revenue 
and through other indicated modes, be obtained by loans, 
without increasing the issue of United States notes beyond 
the amount fixed by law, unless a clear public exigency shall 
demand it. He recommends, also, the organization of banking 
associations for the improvement of the public credit, and 
for the supply to the people of a safe and uniform currency. 
And he recommends no change in the law providing for the 
negotiation of bonds except the necessary increase of amount, 
and the repeal of the absolute restriction to market 
value and of the clauses authorizing convertibility 
at will" 


Early in the session the Hon. Thaddeus Stevens intro- 
duced a bill "to provide means to defray the expenses of 
the government," which, in his own language, "produced a 
howl among the money changers as hideous as that sent up 
ewish cousins when they were kicked out of €he 
temple." This bill was in substance the same as the legal 
tender bill, as it originally passed the House and before it 
was mutilated by the Senate in the manner above explained. 
It was intended to bring the government back to the full 
legal tender money system, "the simplicity and harmony 
of which had been mangled and destroyed by the Senate." 
In a brief, but powerful speech, (December 23, 1862) Mr. 
Stevens pointed out the injustice and danger of the financial 
policy which was then being pursued, and closed with this 
prophetic warning: "But I ought perhaps to say, before I 
close, to my country banking friends that they need not he 


alarmed. There is no great prospect that we shall return 
to the system I have indicated, nor do much to protect the 
people from their own eager speculations. When a few 
years hence, the people shall have been brought ta 
general bankruptcy by their unregulated enterprise, I 
shall have the satisfaction to know that I attempted to 
prevent it." (Mr. Stevens' speech will be found in full in 
the Appendix.) 

On the 8th of January, 1863, the Committee of Ways and 
Means reported a bill entitled, " A bill to provide Ways and 
Moans for the Support of the Government," afterwards 
known as the $900,000,000 loan act The- bill reported 
contained no provision for the repeal of the clause in the 
act of February 25, 18612, restricting the Secretary of the 
Treasury in .the sale of bonds to their "market value," or of 
the clause allowing the holders of legal tender notes to 
epnveri them at any time into 5-20 six per cent, bonds. 

On the 12th of January the biil was taken up in the 
House* vand Mr. Spaulding opened the debate in a lengthy 
speeqh in support of £he bill, in vhich he discussed the 
National Banking achenoe^ recommended by the S^Qretyry, 
arguing in its favor. On the 1 7th of January,' 18d>3, a joint 
resolution was passed "to provide for the iinniediate jpay- 
ment of the army and navy of the United States," authoria* 
ing the Secretary of the; Treasury to issue |100j,0OO,Q00 legal 
tender Treasury notes, %o be covered by the bill then -pend- 
ing ($900,000,000 loan act.) On the 26th of January, 1863, 
the bill was passed— a substitute offered by Mr. Hooper, and 
one by Mr. Stevens, having been first decided in the nega- 
tive — without a division. On the 13th of February, 1863, 
the bill, after being amended, passed the Senate by a vote of 
32 to 4. The usual routine of a conference committee was 
gone through with, with the usual result, and the bill was 


finally agreed to as amended by the Senate, and approved 
by the President March 3, 1863. The following is a synop- 
sis of the bill as given by Mr. Spaulding:* 

" 1. The first section authorizes a loan of $300,000,000 for 
the then current year, and $600,000,000 for the then next 
fiscal year, and to issue bonds therefor at not less than ten 
nor more than forty years, at not exceeding six per cent, 
interest, in coin, not exceeding in all $900,000,000. 

"2. By section second of the same act the Secretary, in 
lieu of an equal amount of said bonds, was authorized to 
issue $400,000,000 of Treasury notes, bearing interest not 
exceeding six' per cent, payable in lawful money, which 
notes, payable at periods expressed on their face, might be 
made a legal tender at their face value. 

" 3. By the third section $150,000,000 in amount of United 


States notes, made a legal tender, might lie issued. The* 
restriction in the sale of bonds to * market value was re- 
pealed. l And the holders of United States notes issued 
under former acts, shall present the same for the ptir- 
jpose of exchanging them for bonds as therein provided^ 
on or before the first of July, 1863, and thereafter the 
right to exchange the same shall cease and determine? 
"4. This section imposed a tax of one per cent, each half 
year, on a graduated scale of State bank circulation^ 
according to the capital stock of each bank." 

Making the interest of the bonds payable in gold and 
declaring that the legal tender Treasury note (greenback) 
should not be receivable for duties on imports, was a gross 
betrayal of the interests of the people by the Senate of the 
United States. But that body was capable of still greater 
perfidy. It will be observed by the synopsis of the $900,- 
000,000 loan act, given above, that the convertibility of the 

•Financial History of the War, page 186. 


greenback with United States six per cent, bonds, as provi- 
ded by the act of February 25, 1862, was repealed 

By the terms of the act of February 25, 1862, under which 
the greenback was issued, the right to exchange it for United 
States bonds was distinctly guaranteed, and was in the na- 
ture of a contract, made by the government with the holder, 
and to abrogate this right was an act of repudiation. The 
motive which inspired the act, was to still further depreciate 
the paper of the government. It is a fact worthy of note, 
that when Congress perpetrated this act of repudiation, " no 
doleful sound came up from the caverns of the bullion 
brokers or the saloons of the associated banks," nor was 
there any howl heard from the gentlemen of the press, who 
were so quick to detect repudiation in Mr. Stevens' bill to 
restore the legal tender act to the condition in which it first 
passed the House.* 


On the 2d of February, 1863, the National Bank bill, 
as prepared by Mr. Spaulding in December, 1861, was 
reported, with alterations and amendments, from the Finance 
Committee to the Senate by Mr. Sherman. The debate upon 
it began in the Senate on the 9th, and on the 12th (three 
days after) the bill passed by a vote of 23 to 21. It was 
taken up in the House on the 19th, and passed the next day 
by a vote of 78 to 64; and received the President's signature 
March 25, 1863. (See Chapter on National Banks.) 

The money power now had matters all its own way, and 
was in a situation to prey upon the government and people 
at its pleasure. Duties on imports were payable in gold; 
interest on the bonds of the United States were payable in 
gold; the exchangeability of the greenback with bonds had 

•See Speech of Hon. Thaddeus Stevens in the Appendix. 


"been abrogated; the country was flooded with evidences of 
indebtedness of the government in all forms and shapes* 
such as demand notes, Treasury notes bearing interest, 
mutilated legal tender notes, certificates of deposit, certifi- 
cates of indebtedness, etc.; and a banking bill, authorizing 
the issue of $300,000,000 in bank notes had been passed. 

The following statement of the public debt (January 2, 
1863) will show exactly the amount and character of the* 
indebtedness of the government at this time: 

Loan of 1842 $2,883,364 11 

" 1847 9,415,250 00 

" 1848 8,908,341 80 

■" 1858 20,000,000 0O 

« 1860 7,022,000 00 

" 1661, act of February 8, 1860 18,415,000 00 

" 1861, act of July 18, 1861 50,002,000 0O 

" 1862, five-twenty six per cent 25,050,850 0O 

Texas indemnity 3,461,000 0O 

Oregon war debt 1,026,600 0O 

Texas debt 112,092 60 

Old funded and unfunded debt 114,115 48 

Treasury notes under acts prior to 1857 ... . 104,561 64 

" " " subsequent 2,750,350 00 

Treasury notes seven-thirty per cent, interest 139,998,000 0O 

Temporary deposits at four per cent 38,458,008 SO 

" " five per cent .. . 41,777,628 1* 

United States notes, legal tender and receiv- 
able for customs 14,913,315 25- 

United States notes, legal tender 223,108,000 0O 

Postal currency less than one dollar 6,844,936 0b 

Certificates of indebtedness, six per cent. . 110,321,241 65 
Requisitions on the Treasurer for soldiers' 

pay and other creditors, due but not paid 59,1 17,597 4* 

Total funded and unfunded debt to January 
2, 1863, according to the books in the 
Treasury Department $783,804,252 64 

The time had now arrived to put the $500,000,000 of 


United States bonds authorized by the act of February 25, 
1862, on the market. Notwithstanding the urgent need of 
the government during this time, Secretary Chase had held 
these bonds back for over a year on the pretence that the- 
restriction to a sale at " market value " prevented him from, 
negotiating their sale to any considerable amount. Mr. 
Gurley, of Ohio, effectually disposed of this plea in the 
course of his speech on the nine hundred million loan act. 
He said: "He did not agree with the Secretary in several 
things contained in his report; the banking scheme, which 
the Secretary admits would not afford any immediate relief, 
should be rejected; we need a sensible, practicable plan 
that will furnish immediate means to pay the army and 
navy. He insisted that Congress, by the act of February 
25, 1862, authorized the Secretary to sell $500,000,000 six 
per cent. 5-20 bonds at 'the market value thereof,' which he, 
had not done, as intended by Congress, and the conse- 
quence was that the soldiers and sailors were not paid, as 
they ought to have been before this time. •*"■••*>• The words 
'market value' do not mean par value, ndf any specified/ 
time or sums. The market value was the price . they would 
bring when offered in the market. There has been imx 
business day or week since the law was passed, when any of 
the many agents of the Secretary in New York could not 
have placed one million, or several, millions, in the market, 
and sold them somewhere near par, to raise money to pay! 
the army and navy." 

In May, 1863, Jay Cooke, "an enterprising banker" of 
Philadelphia, was employed to dispose of the five-twenty 
bonds. The Secretary of the Treasury, up to this time, had 
put out only about $25,000,000, leaving $475,000,000 yet to 
be sold. No effort was made by Mr. Cooke to negotiate 
these bonds with bankers or capitalists, but (to quote from 


Spaulding), "the editors of newspapers and others were 
enlisted to bring the advantages of the loan before the 
people, in order to make it a great popular loan, to be taken 
by them in large and small sums in all the loyal States. Mr. 
Cooke succeeded admirably in this undertaking. The loan 
became very popular, and was taken extensively by farmers, 
mechanics and laboring people, in all the towns, villages and 
cities over the country. By the first of July, 1 863, the amount 
of $168,880,250 of these bonds were taken; and by the first of 
October following, $278,511,500 had been taken up; and by 
the 21st of January following the whole sum of $500,000,000 
had been taken at par, and the rush was so great near the 
closing out of the loan, that nearly $11,000,000 extra had 
been subscribed and paid for before notice could be given 
to sub-agents that the amount authorized by that act had 
been taken up. Congress, however, soon after authorized 
this extra sum to be issued." 

> r Hugh McCulloch also bears testimony as to what class 
of people took the 5-20 bonds. In a letter to the New York 
Tribune, dated at London in September last, he said: "I 
recollect the time when subscribers for United States bonds 
were regarded as patriots, and I happen to know to what 
•class they belonged. With rare exception they were not 
capitalists. * * The purchasers of our bonds were the 
patriotio men of all parties, chiefly men of moderate means, 
who were resolved that the Union should be saved, no 
matter at what cost of money or blood." It may be 
interesting to state that Mr. McCulloch was not one of those 
who were resolved that the Union should be saved, no 
matter at what cost, etc. At the time he refers to, he was a 
country . banker "of moderate means," somewhere in the 
State of Indiana, and was solicited, we believe, by the Sub- 


Treasurer of the United States, Mr. Cisco, to have his bank 
take and dispose of some of " our bonds." He treated the 
request with contempt. This matter was so well known at 
the time of his appointment as Secretary of the Treasury, 
as to be talked of on the streets of Washington, and was 
hushed up by his friends only with great difficulty. 

The partial legal tender Treasury note (greenback), issued 
by the government, now constituted the medium of exchange 
of the nation. Its legal tender property gave it the power and 
functions of money, to measure and exchange values. The 
legal tender money of a country is the measure of all values 
and the basis of all money contracts among its people; conse- 
quently prices in the United States came to be regulated by 
the greenback and not by gold. Any one can satisfy him- 
self on this point by comparing the market prices of any of 
the leading products of the country for a given time with 
the fluctuations in the price of gold. Secretary Chase 
referred to this fact in his second annual report, in which 
he said: "That such is the case (no redundancy of the ctu> 
rency) may be reasonably inferred from the fact that the 
prices of many of the most important articles of consumption 
have declined or not materially advanced during the year. 
Wheat, quoted at $1.38 to $1.45 per bushel on the first of 
November, 1861, was quoted at $1.45 to $1.50 on the first of 
November, 1862. Prime mess pork on the first of Novem- 
ber, 1861, was quoted at $15 to $15.50 per barrel, and on 
the first of November, 1862, at $12.50 to $13. Corn sold on 
the first of November, 1861, at 62 to 63 cents per bushel, 
and on the first of November, 1862, at 11 to IS cents. A 
comparison between the prices of hay, beef, and some other 
staples of domestic produce, at the two dates, exhibits 
similar conditions of actual depression in price or moderate 


rise." Products rise and fall in price according to the 
laws of supply and demand. Foreign goods, however, the 
duties on which have to be paid in gold, are subject to a 
different standard of payment, and are governed in price 
largely by the price of gold. The price of gold is regulated 
by the laws of supply and demand, supplemented by the arts 
and efforts of speculators and gold gamblers. As long as 
the greenback was convertible at the will of the holder into 
a six per cent, gold interest bond, there was no danger of 
it» becoming redundant, or in any way affecting the price 
of domestic products. But, as we have seen, this converti- 
bility was taken away, in the face of the plighted faith of the 
government, after July 1, 1863. 

On March 3, 1864, an act of Congress was passed giving 
Secretary Chase still further discretionary power. It author- 
ized him to issue $200,000,000 of bonds, bearing date March 1, 
1864 ? or any subsequent date, redeemable after five years and 
payable in forty years, in coin, bearing interest not exceeding 
«ix per cent., subsequently known as 10-40 bonds. Under 
authority of this act, Secretary Chase, immediately after the 
5-20 bonds bearing six per cent, interest had been disposed 
of, put 10-40 bonds bearing only Jive per cent interest on 
the market. Very naturally the loan did not prove a suc- 
cess, and by the 1st of July, 1864, the sum realized from 
10-40 bonds amounted to only $73,337,750. In order to 
defray the expenses of the government, the Secretary con- 
tinued to issue evidences of indebtedness of the government 
in various forms calculated to circulate as a currency. By 
this time National Bank notes began to swell the volume of 
the currency. The following statement shows the amount 
and kinds of paper in circulation June 30, 1864: 


U. S. notes, greenbacks $431,178,670 84 

Postal, fractional currency. 22,894,877 25 

Interest bearing legal tender Treasury notes 1 68,5 7 1 ,45 00 

Certificates of Indebtedness 160,720,000 00 

National Bank notes 25,825,695 00 

State Bank circulation about 135,000,000 00 

Seven-thirty Treasury notes 109,356,150 00 

Temporary deposits for which certificates 

were issued 72,330,191 44 


$1,125,877,034 53 

From the above table it will be seen that the country was 
flooded with paper securities of the government of every 
description, mostly bearing interest and issued in a form to 
circulate as currency. Now take into consideration the 
fact that over $700,000,000 of bonds bearing interest payable 
in gold had just been issued, and also that the military 
situation was very critical, and no one can fail to see into 
what a wretched condition the finances of the country had 
been brought. The "bulls" and "bears" of Wall street fairly 
rioted in the speculation and gold gambling which ensued. 
The premium on gold began to go up. On the 15 th of 
January, 1864, it was 1.55; on the 15th of February, 1.59; 
on the 15th of April, 1.78; on the 15th of June, 1.79; on the 
30th of June, 2.50; and on the 11th of July, 2.85£. The 
business affairs of the country were of course greatly 
deranged, and distrust became general. The credit »of the 
government suffered enormously — worse than if it had sus- 
tained a dozen defeats in the field. But the game had been 
carried too far, and it was no longer possible to deceive the 
public, so something had to be done to allay public feeling 
and restore confidence. Secretary Chase was compelled to 
resign June 30, 1864. No change, however, was made in 


the policy of the Treasury Department, and matters went 
on from bad to worse. 


LIMITED TO $400,000,000. 

By the act of June 30, 1864, the amount of greenbacks 
issued or to be issued, was limited to $400,000,000, and "such 
additional sum, not exceeding $50,000,000, as may be tem- 
porarily required for the redemption of temporary loans.** " 
The Secretary was authorize/! to issue $200,000,000 legal 
tender Treasury notes bearing interest, payable in three years. 
By the same act all bonds, coupons, national currency, United 
States notes, Treasury notes, fractional notes, certificates of 
indebtedness, certificates of deposit, etc., were declared to 
be exempt from taxation by or under State or municipal 



William P. Fessenden, United States Senator from Maine,., 
was appointed to succeed Secretaiy Chase, and entered upon 
the duties of his office July 5, 1864. Secretary Fessenden 
raised the means to carry on the government to March 4,. 
1865, by issuing greenbacks, 7-30 Treasury notes, interest 
bearing Treasury notes, certificates of indebtedness, 5-20 
bonds, etc. Secretary Fessenden, while in the United States 
Senate, had played a conspicuous part in mutilating the 
greenback, and the following paragraph from his annual 
report, in December, 1864, in view of his course, cannot fail 
to strike the reader as a singular admission. He said: "The 
experience of the past few months cannot have failed to 
convince the most careless observer that, whatever may be 
the effect of a redundant circulation upon the price of coin, 
other causes have exercised a greater and more deleterious 


influence. In the course of a few days the price of this 
article rose from $1.50 to $2.85 in paper for $1.00 in specie, 
and subsequently fell, in as short a period, to $1.87, and 
then again rose as rapidly to $2.50; and all without any 
assignable cause, traceable to an increase or decrease 
in circulation of paper money, or an expansion or con- 
traction of credit or other similar influence on the market, 
tending to occasion a fluctuation so violent. It is quite 
apparent that the solution of the problem may be found 
in the unpatriotic and criminal efforts of speculators, 
and probably of secret enemies, to raise the price of coin, 
regardless of the injury inflicted upon the country, — or 
desiring to inflict it." No man living, except John Sherman 
of Ohio, was better able to explain how and through whose 
instrumentality these rascally speculators were enabled to 
prosecute their " unpatriotic and criminal efforts " than Mr. 
Fessenden himself. Under the circumstances Mr. Fessen- 
den did not find the position of Secretary of the Treasury 
a very comfortable one; and at the beginning of Mr. 
Lincoln's second term he surrendered it with feelings of 
great relief. 


Immediately after President Lincoln entered upon his 
second term of office Hugh McCulloch, a banker, of the 
State of Indiana, was appointed Secretary of the Treasury. 
Mr. McCulloch was unknown to the public, but it was 
hoped that, being a banker and of course familiar with the 
manner in which the government and people were being 
robbed by the money power, and not identified with the 
corrupt political ring at Washington through which it 
operated, he would endeavor to restore the finances of the 
country to a more healthy condition. Never were a people 


doomed to be more bitterly disappointed, McCulloch not 
only entered into the designs of the money power, but 
became its most subservient tool, and retired with the repu- 
tation of being the first Secretary of the Treasury of thej 
United States who had ever prostituted his high office for the 
purpose of enriching himself and his associates. Henry C. 
Carey, who had a conversation with him immediately after 
his accession to office, says that he expressed himself then 
as unfavorable to contraction, and quotes him as saying that 
he "should gladly see it (gold) at 1.75," meaning that he 
would not favor contraction for the purpose of reducing the 
premium on gold. " Three months later," says Mr. Carey, 
"he was instructing his representatives abroad to give 
assurances that we should have resumed specie payments 
before the 7-3 O's became due. Two months yet later came 
the destructive Fort Wayne decree (a letter from McCulloch 
in which he expressed himself in favor of the policy of con- 
traction), and from that hour did the Secretary persist in 
the absurd and injurious policy therein announced." 

Mr. McCulloch, at the same time that he was giving 
instructions to his representatives abroad that we should 
have resumed specie payments before the 7-3 O's became due, 
was issuing 7-30 Treasury notes and compound interest 
bearing Treasury notes, made a tender at their face value, 
to an enormous amount. The payment of the army, which 
was mustered out of service during this period, alone 
required an immense sum, which was obtained by selling 
7-30 Treasury notes through the agency of Jay Cooke. The 
amount of 7-30 Treasury notes outstanding October, 1865, 
which were convertible in less than three years into 5-20 six 
per cent, bonds, was $830,000,000. 

The following is a statement of the debt and circulation 
of the United States, as it stood October 31, 1865: 


Bonds, 10-40's,five per cent., due in 1904. . $172,770,100 00 

Bonds, Pacific R. R., 6 per cent., due in 1895 1,258,000 00 

Bonds, 5-20's, 6 per cent., due inl882,'84, , 85 659,259,600 00 

Bonds, 6 per cent., due in 1881 265,347,400 00 

Bonds, 5 pef cent., due in 1880 18,415,000 00 

Bonds, 5 per cent., due in 1874 20,000,000 00 

Bonds, 5 per cent, due in 1871 7,022,000 00 

Bonds, 6 per cent., due in 1868 8,908,341 80 

Bonds, 6 per cent., due in 1867 9,415,250 00 

Bonds, Texas indemnity, part due 760,000 00 

Bonds, Treasury notes, etc., part due 613,920 09 

Total Bonds $1,163,769,611 89 

Compound interest notes, 

due in 1867-'68 $173,012,141 00 

7-30 Treasury notes, due 

in 1867 and 1868 830,000,000 00 

Temporary loans, 10 days' 

notice 99,107,745 46 

Certificates of indebted- 
ness, due in 1866 55,905,000 00 

Treasury notes, 5 per cent., 

Dec. 1, 1865 32,536,901 00 

United States notes 428,160,569 00 

Fractional currency 26,057,469 20 — 1,644,779,825 66 

Total debt October 31, 1865 . .$2,808, 549,437 55 

National Bank notes issued $185,000,000 00 

State Bank notes issued 65,000,000 00 

Treasury notes, greenbacks, etc.; 1,644,779,825 66 

•Total circulation*! $ 1,894,779,825 66 

m'culloch's contraction policy. 
Secretary McCulloch, in his first annual report, December 
4, 1865, argued that the legal tender acts were war measures 
and only temporary in character, and " ought not to remain 
in force a day longer than would be necessary to enable the 
people to prepare for a return to the gold standard; and that 

•See table of circulation, Sept. 1, 1865, page 16. 


the work of retiring the notes which have been issued should 
be commenced without delay, and carefully and persistently 
continued until all are retired." On the 18th of December,. 
1865, Congress adopted a resolution " cordially concurring- 
in the views of the Secretary of the Treasury, in relation to a 
contraction of the currency," by a vote of 144 to 6. This was 
followed by an act of Congress, approved April 12, 1866,. 
authorizing the Secretary to sell 5-20 bonds, and with the 
proceeds to retire six per cent, compound interest notes and 
legal tender notes (greenbacks), and other evidences of 
indebtedness of the government, but not to retire more than 
four millions of dollars of greenbacks a month, or forty-eight 
millions of dollars in a year, but without restriction as to the 
amount of compound sixes and seven-thirties. This act gave 
Secretary McCulloch unlimited control over the monetary 
affairs of the country. 

The banks and sharks of Wall street and their kind, at 
home and abroad, held hundreds of millions of securities of 
the government, which they had purchased at various prices 
ranging from thirty-five cents on the dollar upwards. During* 
the war whilst these securities were being emitted, it was the 
policy of the money power to depreciate their value in every 
way possible, in order that they might be bought in at a sac- 
rifice. Hence it was that interest on the bonds and duties 
on imports were made payable in gold, and subsequently, 
that the convertibility of legal tender notes into bonds was 
abrogated. It was for the same reason, too, that Congress, 
instead of adopting a plain, simple system, easily understood 
by the public, such as the legal tender Treasury note sus- 
tained by an interest bearing bond, persisted in authorizing 
the Secretary of the Treasury to issue government securities, 
bearing interest, and mostly payable in three years, in all 
sorts of forms and shapes. Government obligations were 


issued during the war by the Treasury Department vol fifteen 
different forms. It was of course impossible for the general 
public to keep the run of, much less to understand, all these 
various forms of indebtedness, nor was it designed that they 
should. It need scarcely be added, that issuing the securi- 
ties of the government in these peculiar forms furnished the 
banks an additional opportunity to prey upon the people. 

As soon as the last batch of 7-30 Treasury notes was 
disposed of by McCulloch to. raise means to pay off the army 
on the eve of its disbandment, the money power changed 
its policy. It was now to the advantage of the holders of 
government securities to do everything in their power to 
enhance their value. Accordingly from this time on the 
efforts of the money power will be found turned in that 
direction. Secretary McCulloch, who had informed Mr. 
Carey that he would like to see gold stay at $1.75, as we 
liave seen, was soon brought to terms, and was now a zealous 
champion of contraction, for the purpose of bringing the 
country back to "honest money." The Treasury notes, 
purposely made payable in three years, and which were 
convertible into 5-20 bonds, constituted the greater part of 
the public debt held at home. These notes were payable in 
lawful money (greenbacks), and it became an important 
object to have them converted into long time bonds, so 
that the money power might have ample time to secure such 
legislation as would result in the principal as well as the 
interest being paid in gold. Mr. McCulloch entered into 
this method of liquidating the outstanding obligations of the 
government with great zeal. The following items taken 
from his report of December, 1866, exhibit the character 
and extent of the contraction which took place (by substi- 
tuting 5-20 bonds for Treasury notes, etc.,) from August 31, 
1865, to October 31, 1866: 


Temporary loan, 4, 5 and 6 per cent., acts of 

February 25, 1862, and June 30, 1864. . . $62,146,714 27 
Certificates of indebtedness, 6 per cent., acts 

of March 1, 1862, and March 3, 1863 84,911,000 00 

Treasury notes, 5 per cent., one and two 

years, act of March 3, 1863 31,000,000 00 

Treasury notes, 7-30, act of July 17, 1861 . . 295,100 00 

Compound interest notes, 6 per cent., act of 

July 30, 1864 68,512,020 00 

Treasuiy notes, 7-30, acts of June 80, 1864, 

and March 3, 1865 r 105,985,700 00 

United States notes, acts of July 17, 1861, 

and February 12, 1862 134,610 00 

United States notes (greenbacks), acts of 

February 25, 1862, and March 3, 1863. . . 42,830, 174 00 

Amount retired first year $395,815,318 27 

This policy was persisted in until all evidences of indebt- 
edness of the government bearing currency interest, and 
having but a short time to run, were converted into gold 
interest long bonds. The following synopsis of the public 
debt statement contained in Secretary McCulloch's annual 
report of December 1, 1868, will exhibit the progress made 
by him on the 1st day of July, 1868: 


5 per cent, bonds. . $221,588,400 00 

6 per cent, bonds 1,848,415,241 80 

Navy Pension fund. .., . 13,000,000 00-r-$2,08 3,003,641 80 


6 per cent, bonds $29,089,000 00 

3 year comp'nd int. notes 21,604,890 00 

3 year 7-30 notes . . 25,534,900 00 

3 per cent, certificates. . 50,00Q,000 00 — $126,228,790 00 


Treasury notes, compound int'st notes, etc. 20,527,302 64 


U. S. notes (greenbacks) $356,141,723 00 

Fractional currency 32,026,951 75 

Gold certified of deposit 17,678,740 00— $406,447,414 75 

Total debt $2,636,207,149 19 


In the meantime contraction had done its work. Business 
men began to suffer and the industries of the countiy to 
decline. "Hugh McCulloch had tapped a great artery and 
let nearly all the blood flow from the body politic.'* Besides 
the hundreds of millions of evidences of indebtedness of the 
government, used as currency, taken from the channels of 
trade, the greenback circulation was contracted from August> 
1865, to July, 1868, $70,736,636.76. The public began to 
realize, though only partially, the cause of the great change 
that was going on in the business affairs of the country, and 
called a halt. Mr. J. A. Stevens, President of the Chamber 
of Commerce of New York City, in a letter to the New 
York Times in 18*73, thus refers to this period: "The 
country at large had felt the pressure of the screw, but had 
not been able to discover precisely from what quarter the 
pinch came, the contraction being confined to those outside 
forms of Treasury obligations which, though not currency 
in the strict acceptation of the word, were still used as silch 
in the larger transactions of trade and finanoial exchange. 
When, in a time of general pressure, the currency itself 
became the subject of the pruning knife, the country not 
only felt the knife, but saw how it was handled, and refused 
to submit to the * heroic treatment.' " 

Congress was compelled, in January, 1868, by the 1 force 
of public sentiment, to pass a law declaring "that from and 
after its passage, the authority of the Secretary of the 
Treasury to make any reduction of the currency by retiring 
or cancelling United States notes (greenbacks) shall be and 
is hereby suspended." But the mischief had already been 
done. The greenback, however, was saved to the people. 

In 1865 and 1866, after the termination of the war, indus- 
try, by reason of the abundance of money in circulation, was 
rife throughout the country, and production went on as it 


had never done before. During the years 1863, ? 64, '65 and 
-66 the failures throughout the country, as reported in Hunt's 
Magazine, averaged only 545 a year. In 1867 they run 
up to 2,386, and continued above t^at number until 1873, 
when they reached 5,181, with liabilities to the amount of 

In 1865 general prosperity prevailed, and as McCulloch 
himself has since admitted, the people were individually out 
of debt. Business then was done for cash. But as money 
grew scarce business men were obliged, as in days before the 
war, to resort to the banks and borrow bank credit. Business 
was no longer done on cash principles. As like causes pro- 
duce like effects, so the use of bank credit, rendered necessary 
by the scarcity of money, brought the business affairs of the 
nation back to the same condition in which they had been 
for sixty years prior to the war. A commercial crash was only 
a question of time, and accordingly it came in 1873. 



Every act of Congress relating to the financial measures 
Of the government during the war was passed with a view to 
depreciating the public credit. So, now, after the war was 
over, and the money power had obtained possession of all 
the outstanding obligations of the government, every act 
that was passed was passed with a view to increasing their 
value. The 5-20 bonds of the government were payable in 
lawful money of the United States. It will be remembered 
that when the first legal tender act was passed, February 25, 
1862, the chief bone of contention between the Senate and 
House was the payment of the interest on the bonds in 
gold. Legal tender notes were made a tender for "all 
claims aud demands against the United States of every 


kind whatsoever, except for interest upon bonds and 
-notes, which shall be paid in coin, and shall also be lawful 
money and a legal tender in payment of all debts, public 
and private, within the United States, except duties on 
imports and interest as aforesaid." This language is per- 
fectly plain and explicit and leaves no room for doubt. 
When the bill was pending in the Senate, Mr. Collanier, of 
Vermont, offered an amendment depriving the greenback 
of its legal tender quality so far as the public debt was 
concerned, and, at the same time, said that if the bill did 
not mean that bonds were payable in greenbacks, it meant 
nothing. His amendment was voted down. Senator Wilson, 
of Massachusetts, declared that greenbacks ought to be a legal 
tender for the payment of the public debt, and that if they 
were not he would vote against the bill. The Hon. Thaddeus 
Stevens subsequently declared, that " when the bill was on 
its final passage, the question was expressly asked of the 
chairman of the Committee on Ways and Means, and as 
expressly answered by him, that only the interest was pay- 
able in coin. If I knew," he added, " that any party in this 
country would go for paying in coin that which is payable in 
money, thus enhancing it one-half; if I knew there was such 
a platform, and such a determination on the part of any 
party, I would vote on the other side. I would vote for no 
such swindle upon the tax payers of this country; I would 
rote for no such speculation in favor of the large bondhold- 
ers — the millionaires who took advantage of our folly in 
granting them coin payment of interest." 

The first move made by the bullionists and bondholders 
was to educate public sentiment, through the press, in regard 
to the " sacredness of the public faith." The leading news- 
papers of the principal cities took up the song, and before a 
great while the gentlemen of the country press, who are 



quick to learn which way the wind blows, were heard, 
together with the demagogues of both parties, joining in the 
chorus. In many of the Western States, whose people are 
not so completely enslaved by the money power as their 
brethren of the east, public opinion manifested a disposi- 
tion to demand that the five-twenty bonds should be paid 
agreeably to the terms of the acts providing for their issue — 
in greenbacks. This was not confined to any particular 
party. Accordingly we find Senator Sherman, in a speech 
in the Senate, February 27,. 1868, uttering the following sen- 
timents. He said: "I say that equity and justice are amply- 
satisfied if we redeem these bonds at the end of five years 
in the same kind of money, of the same intrinsic value it 
bore at the time they were issued. Gentlemen may reason 
about the matter over and over again, and they cannot come 
to any other conclusion; at least, that has been my conclu- 
sion after the most careful deliberation. Senators are some- 
times in the habit, in order to defeat the argument of an 
antagonist, to say that this is repudiation. Why, sir, every 
citizen of the United States has conformed Iris business to 
the legal tender clause. * * Every State in ' the Union, 
without exception, has made its contracts, since the legal 
tender clause, in currency and paid them in currency." And 
Senator Morton declared that, " we should do foul injustice 
to the government and the people of the United States, after 
we have sold these bonds on an average for not more than 
sixty cents on the dollar, now to propose to make a new- 
contract for the benefit of the bondholder." 

The Presidential campaign of 1868 was impending, and 
it became necessary for the money power to resort to extra- 
ordinary efforts to obtain the direction of political affairs. 
The Rothschilds were in possession of several hundred 
millions of 5-20 bonds, purchased at about sixty cents on 


the dollar or less, and were particularly interested. Their 
agent, August Belmont, who had secured the position of 
chairman of the Democratic National Committee, was 
instructed by Baron James Rothschild as early as March 13, 
1868, that unless the Democratic party went in for paying 
the 5-20 bonds in gold, it must be defeated. The first step 
was to have the national convention held in New York City. 
It accordingly convened there on the 4th of July, 18d$^ 
Belmont and his satellites were unable to control the con- 
vention, at least in the matter of the platform. After a 
stormy session the platform was promulgated on the 7th of 
July, and contained the following plank: "Resolved, Third: 
When the obligations of the government do not expressly 
state upon their face, or the law under which they were 
issued does not provide that they shall be paid in coin, they 
ought in right to be paid in the lawful money of the United 
States." This resolution doomed the party to defeat. At 
this time Mr. Belmont owned a large interest in the New 
York World, generally regarded as the leading Democratic 
newspaper in the country. About the first of October thia 
interest is believed to have been transferred to Manton. 
Marble, editor and part proprietor of the paper. On the 
15th day of October, a few weeks before the general election, 
the World, to the consternation of the democracy through- 
out the country, came out in a leading editorial denouncing, 
Horatio Seymour, the candidate of the party for the Presi- 
dency, as unfit and unavailable, and advising his withdrawal. 
This act of treachery has never been equaled in the annals 
of politics; and, strange to say, the World, under the same 
corrupt influence, continues to occupy the position of a 
leading Democratic newspaper. The money power was 
more successful with the leaders of the Republican party. 
Through its aid Grant was triumphantly elected. President 


Grant was duly inaugurated on the 4th of March, 1869, 
and in pursuance of the programme marked out for him, 
thus alluded to '• the sacredness of the public faith " in his 
inaugural message. He said: "Let it be understood that no 
repudiator of one farthing of our public debt will be trusted 
in public place, and it will go far toward strengthening a 
credit which ought to be the best in the world, and will 
ultimately enable us to replace the debt with bonds bearing 
less interest than we now pay." This was intended as a 
warning to all those who might desire to stand well with 
the administration. 

On the 12th of March a bill was introduced in the House 
by Mr. Schenck, of Ohio, entitled "An act to strengthen the 
public credit of the United States." In due tinie it passed 
both branches of Congress, and was approved by the* Presi- 
dent March 18, 1869. It was the first act of Congress that 
received his official sanction. This act provides as follows: 

" Be it enacted, etc., That, in order to remove any doubt 
as to the purpose of the government to discharge all its 
obligations to the public creditors, and to settle conflicting 
questions and interpretations of the law, by virtue of which 
such obligations have been contracted, it is hereby provided 
and declared that the faith of the United States is solemnly 
pledged to the payment in coin, or its equivalent, of all the 
obligations of the United States not bearing interest, known 
as United States notes, and of all the interest bearing obli- 
gations, except in cases where the law authorizing the issue 
of any such obligations has expressly provided that the same 
may be 1 paid in lawful money, or in other currency than gold 
and silver; but none of the said interest bearing obligations, 
not already due, shall be redeemed or paid before maturity, 
unless at such times as United States notes shall be convertible 
into coin at the option of the holder, or unless at such time 


bonds of the United States, bearing a lower rate of interest 
than the bonds to be redeemed, can be sold at par in coin. 
And the United States also solemnly pledges its faith to 
make provision at the earliest practicable period for the 
redemption of the United States notes in coin." 

To show conclusively that the 5-20 six per cent, bonds of 
the United States were not regarded either at home or 
abroad as payable in coin, Mr. Lawrence, of Ohio, called 
attention to the fact that, " on the 30th day of November, 
1867, (over two years after the war was over) our five-twenty 
six per cent, bonds sold in London at 70£ cents, while New 
Brunswick and Cape of Good Hope six per cents sold at 
105; Russian five per cents at 85 and Brazilian five per cents 
at 75." 

Congress and the President had done everything in their 
power to make the 5-20's payable in gold, but the Roths- 
childs and the money power generally were apprehensive as 
to the future, inasmuch as the act of Congress of March 18, 
1869, was in violation of the terms of the contract under 
which the bonds had been issued, and might be repealed. 
No time was lost, therefore, in inducing the Secretary of the 
Treasury to pay off these bonds in gold. By means best 
known to themselves, McCulloch had been induced to redeem 
about $150,000,000 of these bonds, during his administration 
of the Treasury, and the process was continued under Bout- 
well and his successors, until the 5-20 bonds, issued under 
the original act of February 25, 1862, were all redeemed in 
gold or its equivalent.* This single act of robbery, for it is 
only one of the many acts of robbery which have been 
perpetrated by the money power during the past few years 
under the guise of law, will foot up about as follows: 

*8ee public debt statement, page 231. 


Amount of 5-20 six per cent, bonds $500,000,000 00 

Interest in gold at six per cent., compounded 

semi-annually, for ten years 403,096,132 71 

Total $903,096,132 71 

Cost of $500,000,000 bonds at say sixty cents 

on the dollar 300,000,000 00 

Net profit in ten years, in gold $603,096,132 71 


The next move of the money power was to have the public 
debt refunded, in order to place its payment in coin beyond 
all question. Accordingly an act entitled "An act to author- 
ize the refunding of. the national debt," was passed and 
approved July 14, 1870. This act provided, "That the Sec- 
retary of the Treasury is hereby authorized to issue, in a sum 
or sums not exceeding in the aggregate $200,000,000, coupon 
or registered bonds of the United States, in such forms as 
he may prescribe, and of denominations of fifty dollars, or 
some multiple of that sum, redeemable in coin of the 
present standard value, at the pleasure of the United States, 
after ten years from the date of their issue, and bearing 
interest, payable semi-annually in such coin, at the rate of 
five per cent, per annum*" $300,000,000 of like bonds, 
bearing four and a half per cent, interest, redeemable after 
{fifteen years, and also a sum of bonds bearing four per cent. 
interest, redeemable after thirty years — in all not to exceed 
$1,000,000,000, were also authorized. The Secretary of the 
Treasury was authorized to sell these bonds at par for coin, 
and with the proceeds to redeem any of the bonds of the 
United States outstanding, known as five-twenty bonds, * c or 
he may exchange the same for such five-twenty bon<l& y 
par for par ." 

By the act of January 20, 1871, the act last recited was* 


amended so as to increase the amount of five per cent, gold 
bonds authorized to be issued to $500,000,000, and to make 
the interest on the bonds payable, at the discretion of the 
• Secretary, "quarter year ly" 

Under these two acts gold bonds to the amount of $465,- 
558,450 were issued up to November, 1875; and a bill, 
of a like character, introduced by Sherman in the Senate, is 
now pending in Congress, to complete the job. When it 
shall have passed Congress, the entire public debt, contracted 
in lawful money at a time when it was greatly depreciated 
as compared with gold, will be transformed into a debt 
payable, principal and interest, in gold. 

The following table exhibits the amount and character of 
the public debt, bearing interest, on the 30th day of Novem- 
ber, 1875. It will be observed that the greater part of the 
<lebt of the United States, incurred during the war, is now 
represented by bonds issued since the war: 

' Loan of 1858, act of June 14, 1858, 5 per cent. $260,000 
Loan of February, 1861, (81's) act of Febru'y 

8, 1861, 6 per cent 18,415,000 

Oregon War Debt, act of March 2, '61, 6 per c. 945,000 
Loan of July and August, 1861, (81's) act of 

July 17, and Aug. 5, 1861, 6 per cent 189,321,350 

Loan of 1863, (8 l's), act of March 3, '63, 6 p. c. 75,000,000 

Ten-forties of 1864, act of March 3, '64, 5 p. c. 194,566,300 
Five-twenties of June, 1864, act of June 30, 

1864, 6 per cent 46,891,100 

Five-twenties of 1865, act of March 3, '65, 6 p. c. 152,534,250 

Consols of 1865, act of March 3, 1865, 6 p. c. 202,663,100 

Consols of 1867, act of March 3, 1865, 6 p. c. 310,622,750 

Consols of 1868, act of March 3, 1865, 6 p. c. 37,474,000 
Funded Loan of 1881, acts of July 14, 1870, 

and January 20, 1871, 5 per cent 465,558,450 

Total $1,694,251,300 



It now only remains for the money power to bring about 
a resumption of specie payments and it will have accom- 
plished all its ends; and the American people will once 
again be completely under its domination. From the day 
that the old State banks suspended specie payments until the 
present time, that object has never been lost sight of for a 
moment. No system of money has ever been devised that 
confers such absolute control over the currency, and through 
it over the property and business affairs of a nation, upon the 
money power, as banks of issue; and hence the adoption oF 
the National Banking scheme. But the greenback interferes 
very materially with the workings of the system, and it is^ 
important that it should be got out of the way. There is 
also another great incentive to cause the money power to 
seek a return to specie payments. By a single stroke the 
bondholding and creditor class will be enriched to the. 
amount of hundreds of millions of dollars. 

In January, 1875, the bullionists found themselves strong, 
enough in Congress to pass a law decreeing specie resump- 
tion January 1, 1879. The composition of the House of 
Representatives, at this time, is worthy of note, and should 
open the eyes of the people to the necessity of sending a 
different class of men to represent them in that body. The 
Hon. Moses W. Field, of Michigan, in a recent speech gives 
a detailed statement of the professions and callings of the 
members of the 43rd House, of which he was a member, 
as follows: "The forty-third Congress, to which I belonged, 
was composed of 379 members. In this number there were 
six lumbermen, thirteen manufacturers, seven doctors, four- 
teen merchants, thirteen farmers, three millers, one land 
surveyor, one priest, one professor of latin, one doctor of 
laws, one barber, one mechanic, ninety-nine lawyers, and one 


hundred and eighty-nine hankers, which includes stockhold- 
ers in National Banks." Almost a clear majority of members 
were either hankers or interested in National Banks. The 
specie resumption act then passed rests like an incubus upon 
the industrial interests of the country. Everything, however, 
is working to the satisfaction of the bullionists and the bond- 
holders. As industry and production languish, property 
of all kinds depreciates in value, and when resumption takes 
place, the money power will be -enabled to gather it in, to the 
amount of hundreds of millions more, on its own terms.. It 
seems hard indeed that the farmer, the mechanic, the manu- 
facturer, and the producing classes generally, who bear 
almost the entire burden of taxation, should thus be oppressed 
by legislation, and millions of industrious people be deprived 
of the opportunity of even earning their bread, for no other 
purpose than to further enrich a single class, which contril* 
utes not one iota to the general wealth of the country. But 
the masses, as long as they sink the duties and privileges of 
freemen in a blind partisanship, and permit themselves to be 
manipulated by demagogues through the instrumentality of 
party machinery, can expect no better fate. The question 
of resumption is one of such vital importance that it is 
deserving of more than a passing notice. It will, therefore, 
receive more particular attention in a separate chapter, 
(Chapter VIII.) 


In 1861, when the Federal Government, unable to borrow 
money at home or abroad, was obliged to appeal to the 
masses, who were both able and willing to respond, the 
great question was as to how the resources of the people- 
were to be rendered available to the government Taxation 
was impracticable in the beginning, because the government 
did not possess the machinery for laying and collecting 


taxes, and, moreover, there was not a sufficient amount of 
money in circulation at that time to enable the people to 
meet the extraordinary demands of the occasion. Products 
#nd labor the people possessed in abundance, but they could 
be rendered available only through the instrumentality of a 
medium of exchange. Besides it was necessary to establish 
new forms of production, requiring capital to a large amount 
in the form of money. The first requisite, therefore, was 
manifestly a medium of exchange. This could be supplied 
only by the Federal Government; for all power over the 
currency of the nation is vested in the Federal Government 
by the Constitution. 

The Federal Government wanted guns, ships, food, cloth- 
ing, transportation, etc. The fanner could furnish food; 
the manufacturer, guns, wagons, etc.; and the ship builder, 
ships. Other classes did not possess such things as the 
government required, but they did possess property of 
various kinds and labor, which were wanted by the ship 
builder, the gun-maker and the farmer. The people collec- 
tively desired the gun-maker, the ship builder and the farmer 
to furnish the Federal Government with such articles as it 
required and they were able to supply, and were willing in 
turn to supply the gun-maker, the ship builder and the 
farmer with such property or labor as they might desire, to 
whatever amount they might be entitled. But how could 
this interchange be effected? In no better way than by a 
medium of exchange representing the property of the nation. 
The people in their collective capacity, through the govern- 
ment, could issue public notes, representing the entire prop- 
erty of the nation, including gold, silver — everything in a 
word that could be reached, by a tax warrant. The public 
note, of the value of say one dollar, if paid by the government 
to the gun-maker, would entitle him to receive one dollar's 


worth of property, neither more nor less. But suppose that 
the people, after they had made this arrangement with the 
gun-maker, the farmer and the ship builder, in their collec- 
tive capacity, through the agency of the government, should 
refuse individually to receive this paper dollar, representing 
the property of the nation on which it is a lien, what then? 
This would clearly be acting in bad faith with the gun- 
maker, the farmer and the ship builder, and would be tanta- 
mount to the people repudiating individually what they had 
done collectively. Hence it is nothing more than a matter 
of equity and fair dealing that the public note should be 
made a legal tender; in fact in no other way could the 
farmer, the gun-maker and the ship builder be reimbursed 
from the property of the rest of the people for the guns, 
food, etc., furnished to the government. As is generally 
understood by lawyers, if not by political economists, the 
legal tender money of a country is the basis of all money 
contracts among its people and the measure of all values; 
and necessarily conforms to the unit of value fixed in the 
minds of the people by usage and education. By making 
the public note a legal tender, it is clothed with all the 
functions of money. It possesses value (the value of the 
property which it represents), and by virtue of its legal 
tender quality the power to measure and exchange value. 
A public note, based on sound principles, it will be observed, 
therefore, is capable of performing a two -fold service. 
In the first place it enables the government which issues it 
to draw upon the resources of the people in advance of 
taxation. The government pays it out for property or 
services, and receives it again for taxes. In the second 
place, whilst in circulation, it performs all the functions of 
money, and in the end furnishes the means for the tax payer 
to meet his obligations to the government. The amount of 


greenbacks now in circulation is over $360,000,000. The 
annual revenues of the government amount to about $300y» 
000,000. It is apparent, therefore, that the greenback circu- 
lation could all be redeemed in the revenues of the govern- 
ment in a little over a year. From this it is evident that the 
clamor of the bullionists for the redemption of greenbacks 
in gold, or the funding of them in bonds payable in gold, is 
only for the purpose of enabling them to swindle the gov- 
ernment and people to the extent of the premium which the 
government would be obliged to pay to obtain gold for that 

It is clear, then, that the first step for the government to 
take at the breaking out of the rebellion, to enable it to draw 
upon the resources of the people, was to issue a legal tender 
public, or Treasury note. But no more money can be used 
by a people than is required by the legitimate operations of 
trade. Professor Bonamy Price, whom we are glad to find 
right occasionally, illustrates the point in this way: "Carts 
and money are both tools — instruments of conveyance, 
endowed with the same nature and subject to the same 
general laws. The question for each is the same — how 
many are wanted for the work which they were invented 
to do. In the case of money, how much gold (or legal tender 
paper money) can a nation use? How much can it find 
employment for? The answer, as with carts, must be sought 
from the special work money has to perform — that is, from 
the amount of exchanging which calls for the agency of this 
tool, the quantity of property of which the ownership has to 
be transferred by this instrument. A cart transfers weight; 
money, ownership; and all the world knows that the cartage 
to be done determines the number of carts. In the same 
way, the ownership of property which requires to be trans- 
f erred by the actual employment oi moikey \\»«ML ,^\fcrcm^ 


how much money there ought to be in a nation. No other 
answer is possible, unless it is denied that money is only a 
tool; if so, another explanation of the nature of money must 
be produced." For the government to issue legal tender • 
notes in return for property to an indefinite amount after the 
channels of circulation had been supplied, would be contrary 
to all sound principles of finance, as well as political economy. 
The next step for the government to have pursued was to 
draw upon the resources of the people by taxation. But as 
it was manifest at the time that the extraordinary expenses 
of the war could not be wholly defrayed by taxation — in other 
words, that the government could not, under the circum- 
stances, act upon the principle — "pay as you go" — without 
causing oppression and interfering materially with the 
producing ability of the nation, the third and last step was 
to issue a bond bearing interest, in order that the govern- 
mernt might avail itself of the surplus capital of individuals. 
No more perfect system of money or finance than this has 
ever been devised. It is, moreover, simple and easily under- 
stood by the people. This system was embodied in the 
original legal tender act, as framed by the Hon. E. G. Spaul- 
ding, an able financier and statesman. It was ardently 
supported by the Hon. Thaddeus Stevens, who had thor- 
oughly acquainted himself with all the systems of money and 
finance of ancient and modern times, with all his powerful 
ability* It met with the hearty endorsement of the Boards 
of Trade and Chambers of Commerce of all the principal 
cities of the North and West. Its adoption by the House 
of Representatives was hailed with marks of approbation 
and satisfaction by the intelligent classes everywhere through- 
out the country. That it would have worked admirably in 
practice is abundantly demonstrated by the performances of 
the greenback in the niost trying period oi \taa ^^^VV&Sr 



tory, and by the manner in which the people took the loan 
of $500,000,000 of five-twenty bonds. 

But through the machinations of the money power, and 
• the weakness and venality of the United States Senate, a full 
legal tender money system was rejected, and in its stead was 
adopted a policy, which would have bankrupted, in a short 
time, any nation not possessing the boundless resources of 
the United States. 

During the war every act and measure relating to finances 
was calculated to depreciate the public credit; but as soon 
as the war was over an entire change of policy ensued, cal- 
culated to render the burdens of the people doubly oppressive. 
That this may be seen at a glance, we give below a recapitu- 
lation of the leading incidents and measures which marked 
the two periods — during and after the war, as follows : 


1. The banks of New York, Boston and Philadelphia pro- 
cured the suspension of the Sub-Treasury act, Aug. 5, 1861. 

2. The banks of New York, Boston and Philadelphia com- 
bined to prevent the passage of the legal tender act, and 
sent delegates to Washington City for that purpose, Jan- 
uary, 1862. 

8. The representatives of the banks of New York, Boston 
and Philadelphia effected an arrangement with the Secre- 
tary of the Treasury and leading members of the Senate 
to oppose a full legal tender bill, and to ui^ge the passage 
of a National Banking law. 

4. The legal tender act passed in a mutilated form — interest 
on bonds and duties on imports made payable in gold, 
February 25, 1862. 

5. Paper emissions authorized by Congress and issued by 
the Secretary of the Treasury, to an enormous amount, 

in fifteen different forms. 


6. The $500,000,000 of 5-20 six per cent! bonds held by 
the Secretary of the Treasury for over a year, until the 
country was flooded with paper emissions of all kinds, 
and then put out as a popular loan at par amongst the 
people, to be bought in by the bullionists at fifty cente or 
less on the dollar. 

*I. Legal tender Treasury notes (greenbacks) further mutila- 
ted (March 3, 1863) by repealing the clause in the original 
act which made them interchangeable with 5-20 bonds. 

8. Immense sums of Treasury notes, bearing interest, paya- 
ble in one, two and three years, issued, when it was well 
known that the Treasury Department was unable to make 
any provision for their payment at maturity. 

9. A bill passed (Feb'ry 25, 1863,) authorizing the establish- 
ment of National Banks, which could render no aid to 
the government, and whose currency tended to swell the 
volume of paper in circulation. 

10. The $500,000,000 loan of six per cent, bonds no sooner 
taken than the Secretary attempted to put out a new loan 
bearing only five per cent, interest. 

11* The failure to float the five per cent* bonds made an 
excuse for emitting additional sums of Treasury notes, 
bearing interest, and other forms of paper suitable lor 
a-circulating medium. 

12. The emission 1 at the close of the war of immense sums 
of 7-30 Treasury notes, payable in three years, and con- 
vertible at the Option of the holder into long bonds bear- 
ing gold interest. 


1. "All bonds, Treasury notes and other obligations of the 
government shall be exempt from taxation by or under 
State or municipal authority ." ^Ajc\> oi 5\*ftfc ^& % "S»fck« 


Although passed before the termination of the war, this 
act belongs to this period. Like the National Banking 
law, it simply anticipated events.) 

2. McCulloch issued his Fort Wayne decree, announcing 
his determination to contract the currency. 

3. McCulloch submitted his annual report, December, 1865, 
in which he recommended contraction. 

4. Congress passed a resolution, December 18, 1865, con- 
curring in the views of the Secretary of the Treasury 
in relation to the necessity of contracting the currency. 

5. Congress passed an act, April 12, 1866, authorizing a 
contraction of the currency. 

6. McCulloch began to pay off the 5-20 bonds in gold or its 

7. McCulloch substituted long bonds bearing gold interest for 
Treasury notes, etc., to the amount of about $1,200,000,000, 
which operated as a contraction of the medium of 
exchange of the country to that amount, occasioning great 
financial derangement Also retired over $70,000,000 of 
greenbacks between August, 1865, and July, 1868. 

8. Congress, compelled by public sentiment, repealed (Jan- 
uary, 1868) so much of the act of April 12, 1866, as 
provided for the retirement of greenbacks, but took no 
note of the contraction in other forms of the currency. 

9. The people of both political parties began to protest 
against the payment of the 5-20 bonds in gold, as a viola- 
tion of the spirit and letter of the act under which they 
were issued. 

10. The money power selected a President of the United 
States (1868.) 

11. The President of the United States, in his inaugural 
message, March 4, 1869, notified the public that he would 

regard all who did not favor the Y>&yHxgii\» oi Vift ^uda 


in gold as repudiators, who need expect no favors from 
his administration. 

12. Congress passed a credit strengthening act, March 18, 
1869, the first act which received President Grant's official 

13. The original loan of 5-20 bonds paid off in full in gold 
or its equivalent. 

14. Congress passed a law, July 14, 1870, authorizing the 
Secretary of the Treasury to refund $500,000,000 of th« 
public debt in bonds payable, principal and interest, in gold. 

15. McCulloch's contraction policy bore its legitimate fruits, 
and the country was visited by an old fashioned commer- 
cial crash and money panic, September, 1873. 

16. The people demanded relief, and Congress, at its next 
session, passed a bill authorizing the reissue of the green- 
backs which had been retired (44,000,000), and fixing the 
amount of the greenback circulation at $400,000,000. 
This bill was denounced by the money power as an 
"inflation" measure, and accordingly was vetoed by Pres- 
ident Grant, April 22, 1874. 

1?. The people rebuked the action of the President by 
electing, at the next general election, in the fall of 1874, 
a Democratic House of Representatives. 

18. At its next session, Congress (the old Congress), under 
the pretense of affording relief to the oppressed industries 
of the country, made National Banking free to bond- 
holders, by act of January 14, 1875. 

19. And at the same time decreed specie resumption, to 
take place January 1, 1879. 

20. An act to complete the refunding of the public debt in 
gold bonds is now pending before Congress. 

21. Bonds of the United States, which during the war were 
bought and sold at as low as tlnitY'&vfc cerate o^^fc 3vs&sx 



in gold, now sell for over $1.18, or at a premium of over 
five per cent, in gold. 

In 1865, when the Rebellion terminated, the producing 
forces of the Northern and Western States, the. workingmen, 
the land, the machinery, the mines, the water power, etc., 
were developing wealth in every possible direction, and the 
people, individually free from debt, were in the enjoyment 
of unparalleled prosperity. The wealth of the nation, in 
spite of the 'ravages of war, had increased as it had never 
done before. The assessed valuation of the property of the 
nation in 1870, notwithstanding the ruined condition of the 
South, was over $30,000,000,000, as against $16,000,000,OOG 


in 1860. Out of the abundance of their productions the 
people were enabled to meet all the demands of the govern- 
ment with ease. The Federal Government, indeed, began 
to pay off the public debt rapidly. But in carrying out the 
policy of the money power, it first paid off, by substituting 
bonds, all those forms of indebtedness of the government 
which served the purposes of money, thufe depriving the 
producing forces of the nation of their most important tooli. 
At this time the South, with all her magnificent resources, 
had been restored to the Union. Money was necessary 5 to 
set the producing forces of that section at work. Instead df 
wisely taking this fact into consideration, and making some 
pro virion that would enable the people of that section to 
recover from the disasters of the war, and contribute the'ir 
share towards bearing the burdens of government, an entirely 
opposite policy was pursued. The production of cottoii, 
the chief staple of the South, in 1870 amounted to only 
3,011,996 bales, or a little over 50 per cent, of the amount 
raised in 1860. ••■■.•..■* 

Now the American people are "poor ooA. \n ^fcX* ^^»&^ 
*U forms of productive industry we ^n^i^ ^ ^» 


channels of trade are stagnant or sluggish. Real estate is 
rapidly depreciating in value, which will inevitably result 
in a general foreclosure of mortgages and transfer of prop- 
erty from the debtor &)•' the sctf editor class throughout the 
country. Instead of a million of non-producers carrying 
muskets, as was the case during the war, there are now 
several millions of people, who would gladly work for a. 
mere subsistence, in a state of enforced idleness, living on 
the bitter bread of public ot private charity. In a country 
possessing boundless, natural wealth, tramps and paupers 
have become common. The nation is scarcely producing 
more now than the necessities of life. And yet the people 
are told that the present condition of affairs is due to over 
production and: like causes. The only over production 
troubling the nation just now is an 'over production of fools 
and rascals-— rascals who teach such nonsense, to divert 
the public mind from the true source of the trouble, and 
fools who believe it; Since the attempt to re-establish- * 
false monetary system by means of * contraction has worked 
such wide spread ruin, it would seem to be but; the part of 
common wisdom, on the part of the people^ to demand a 
different policy, if not from conviction, at least^as an experi- 
ment. It certainly could not make matters worse. 

.: I 



Secretary Chase, soon after he entered upon the dis* 
charge of the duties of Secretary of the Treasury, became 
enlisted in a scheme to destroy the old State banks and erect 
in their stead a system of National Banks whose circulation 
would be uniform throughout the country. In his first report 
to Congress, in December, 1861, he recommended the pas- 
sage of a law to accomplish this end. A bill was immedi- 
ately prepared by the Hon. E. G. Spaulding, chairman of 
the Sub-Committee of Ways and Means, but it became 
manifest that the machinery of such a system could not be 
jtot into operation in time to meet the demands upon the 
government, and Congress was obliged to pass a law author- 
izing the Secretary of the Treasury to issue Treasury notes 
(greenbacks.) < 

' The r admirable manner in which the greenback per- 
formed the uses of a medium of exchange and its great 
popularity rendered it tolerably certain that the people 
would never willingly abandon it to return to the use of 
State bank currency. The money power was quick to 
perceive this, and also that in no other way than through 
the instrumentality of such a scheme as that proposed by 
Secretary Chase and his advisers could it hope to again 
obtain its former control over the currency of the country. 
The National Banking scheme, therefore, which at first 
excited some opposition on the part oi \Jtvfc o\& State banks, 
soon came to be regarded by tlie majority oi fti&\&.a& ol ^&& 


highest importance. In December, 1862, Secretary Chase, 
in his second annual report, again urged the passage of a 
National Banking law, for the purpose of establishing "one 
sound, uniform circulation of equal value throughout the 
country, upon the foundation of national credit, combined 
with private capital." There was no expectation or even 
pretense that the system could aid the government in any 
way in the war then pending. 

On the 2d of February, 1863, Senator Sherman reported 
a National Currency Bank bill from the Finance Committee 
to the Senate. It was taken up in the Senate on the 9th, 
and passed on the 12th by a vote of 22 to 21. On the 13th 
it was sent to the House, but was not referred to the Com- 
mittee on Ways and Means. On the 19th it was taken up 
for consideration in the House, and was passed on the 20th 
by a vote of 78 to 64. It was approved by the President 
and became a law February 25, 1863. 

The brief time given to the consideration of this important 
act, establishing a consolidation in the interest of the money 
power, compared with which the monster that Jackson slew 
(the United States Bank) was a mere pigmy, cannot escape 
notice. The people were absorbed in the war, and the 
money power had full sway in Congress. The Hon. W. P. 
Noble, one of the few members who protested against the 
passage of the act, alluded to this fact in the opening of his 
speech against the bill in these terms: "Mr. Speaker, it is 
not because I expect, by anything I can say, to change a 
single vote upon this bill, that I now claim the attention of 
the House. On the contrary I am satisfied, from the great 
and untiring efforts that are being made by the Secretary of 
the Treasury in its favor, that the passage of this bill is a 
foregone conclusion; not because \\>,ot ^xt^Kvsi.% \&& ^Na^ 


demanded by the people, but simply because it is a pet 
measure of the present head of that department." 


The National Banking law provides: First: That any 
number of persons not less than five may form an association 
for carrying on the business of banking. . . , / ;,.,.. 

• Second: That any such association shall have corporate 
power, to have succession for the period of twenty years, to 
make contracts, to sue and be sued, etc. ....•,-, 

- £hird: The capital of such associations shall be not less 
than $50,000 in .pjaces whose population does not exceed 
^.thousand* not jess than $100,000 in places whose popu- 
lation exceeds six thousand; and not less than $200,000 in 
peaces wjiose .population exceeds fifty thousand. 
..,„ Fourth:* Ttye aggregate amount of circulation is fixed at 
$3,54,000,009, to be apportioned -as follows: $150,000,0QO 
.among the several States and territories according to repre^ 
sentative population; $150,000,000 to be distributed by the 
Secretary of the Treasury according to his discretion; and 
the remaining $6 4,000,000f to such States and territories, 
having less than their share, as may make application prior 
«o July 12, 1871. 

- 1 Fifth: No association is authorized to commence business 
until it shall have deposited United States bonds. to the 
amount of $30,000 with the Treasurer of the United States. 

Sixth: Every such association is entitled to receive from 
the Comptroller of the Currency circulating notes to the 
amount of ninety per cent, of the capital stock, if it does not 
exceed $500,000; eighty per cent, if it exceeds $500,000, 
but does not rxceed $1,000,000; seventy-five per cent if it 
exceeds $1,000,00Q, but does not exceed $3,000>QQC); an£ 
sixty per cent, if it exceeds $3,000,000. ) ., r . 

•Bv the act of January 14» 1875, ihis section was repealed. 

f$54,000,000 additional bank notes were authorized by the act of July, 1870. 



No National • Bank currency was issued until about the 
beginning of 1864. It will be remembered that the $500,- 
000,000 of 5-20 bonds were not sold until the latter part of 
1863; consequently matters were not yet ripe for the bul- 
lionists and bankers. In 1864, however, their plans were 
sufficiently matured to enable them to run gold up to an 
enormous premium, in what Mr. Fessenden, who was then 
'Secretary of the Treasury, considered a very " unpatriotic " 
manner. For more than a year gold fluctuated between 
about 1.50 and 2.50, according to the success which attended 
the efforts of the gold operators in controlling the market. 
Bonds of the government were bought during this period at 
as low a price as thirty-five cents on the dollar in gold. 
This gave the bullionists and bankers an excellent opportu- 
nity to lay in, at low figures, all the bonds that were, needed 
to establish National Banks. 

The amount of National Bank notes in circulation on 
January 1, 1864, was $280,000; on July 1, 1864, it was 
$31,234,420; and on July 1, 1865, it was $146,336,030. 
Shortly after this the whole amount authorized by law 
was taken, and National Bank stock began to command a 
premium. Thus was the National Banking system foisted 
upon the country at a time when it was neither needed nor 
desired, solely for the purpose of enabling the money power 
to again usurp the right of supplying the nation with a 
medium of exchange. It only remains now to retire the 
greenback and resume specie payments, and the money 
power of the United States will be clothed with a more 
absolute control over the monetary affairs of the country 
than it ever had before. 


National Banks are established on the theory of combining 
private capital with public credit. It will be found on 


examination, however, that this is purely a delusion. Private^ 
capital is not an essential element in the establishment of a 
National Bank; private credit will do as well. This may be 
illustrated in various ways. Suppose A. owns $100,000 in 
6 per cent. United States bonds. B., C, D., E. and F., five 
persons, jointly borrow these bonds from A., agreeing to 
pay him the interest regularly as it matures, and return the 
same or like bonds at some specified time, say in five or ten 
years. B., C, D., E. and F. organize a National Bank, 
deposit the bonds with the Treasurer of the United States,, 
and obtain $90,000 of National Bank currency from the* 
Comptroller. So far as the bank or its currency is con- 
cerned, there is no element of private capital involved in 
the matter. Its corporators or stockholders have not paid in 
a dollar for the capital stock of the concern. A.'s bonds are 
not capital, because the people have already borrowed A.'s 
capital and are paying him six per cent, interest in gold for it. . 
Upon what capital then is the bank established? Upon no 
other capital clearly than the public credit represented by 
the $90,000 of bank currency lent to B., C, D., E. and F., 
without interest, on the strength of what the government 
owes A. 

There are of course innumerable ways in which individu- 
als can utilize their capital or credit in the establishment of 
National Banks. The Hon. S. S. Marshall, of Illinois, in a 
speech on the floor of Congress, July 21, 1868, mentioned 
the following instance: "An association of gentlemen (in an 
Eastern State) raised $300,000 in currency. They went to- 
the office of the Register of the Treasury and exchanged 
their currency for $300,000 in six per cent, gold bearing 
bonds. They then went to the office of the Comptroller o£ 
the Currency 9 in the same \>ni\dmg, OT^a,\mftA. a. "fcfotionaL 


Bank, deposited their $300,000 in bonds and received for 
their bank $270,000 in national currency. They had let 
the government have $30,000 in currency more than they 
received for banking purposes, and had on deposit $300,000, 
on which they received as interest from the government 
$18,000 a year in gold (and exempt from taxation.) This 
was pretty good financiering for these bankers to receive 
$18,000 a year in gold on the $30,000 in currency which they 
had thus loaned to the government. But this is not the whole 
story. They had their bank made a public depository. 
They soon discovered that there was scarcely ever less than 
$1,000,000 of government money deposited within their 
vaults. They did not like to see this vast sum lie idle- 
They, therefore, took $1,000,000 of this government money 
and bought $1,000,000 of five-twenty bonds with it. In 
other words they loaned $1,000,000 of the government's own 
money to the government, and deposited the bonds received 
in the vaults of their bank, on which they received from the 
same government $60,000 a year in gold as interest. Thus 
for the $30,000 in currency, which they originally loaned the 
government, they received annually in all $78,000 in gold." 
But this was by no means the limit to the legalized robbery 
which these gentlemen were capable of perpetrating under 
the National Banking law. Since they had no scruples about 
investing the government deposit of $1,000,000 in 5-20 bonds 
and appropriating the interest to their own use, it is not at 
all likely that they would stop there, when, by simply depos- 
iting the $1,000,000 in 5-20 bonds with the Comptroller of 
the Currency, instead of in their bank vaults, they could 
draw eighty per cent, more currency, or by starting two 
new banks of $500,000 each, they could draw ninety per 
cent, more currency, to substitute for that amount of the 
original deposit of the government use&Vj \\\evxu 


The following table exhibits the number, nominal capital, 
etc., of the National Banks in existence September 1, 1873, 
together with the amount of their earnings, from March, 

1873, to September, 1873: 

Ho. Basks. Capital Surplus. Net Zaraingi. 

New England States, 496 $157,014,832 $38,303,887 $10,103,736 

Middle States, 591 192,234,009 53,431,089 12,565,331 

.Southern States, 161 33,259,530 3,600,607 2,246,024 

Western States, 707 105,592,580 22,778,265 8,206,909 

Totals, 1955 $488,100,951 $118,113,848 $33,122,000 

At this time, September, 1873, the National Bank circula- 
tion was as follows: 

Amount of Circulation 

Circulation. per capita. 

New England States $110,489,996 $31.68 

Middle States 124,608,139 12.82 

Southern States 38,160,308 2.91 

Western States 78,785,148 7.09 

Pacific States and Territories 1,924,688 1.82 

Total for States and Territories. . .$353,968,279 $9.18 

The profits of the National Banks, according to their own 

reports, as set forth in the foregoing tables, are enormous. 

This will appear from the following: 

Nominal capital of National. Banks in 1873. . .$488,100,951 
Bank note circulation furnished by the govern- 
ment, without interest 353,968,279 

, ^— — i^_ 

Real capital $134,132,672 

Surplus earnings 118,113,848 

Total real capital and surplus earnings $252,246,520 

Net earnings from March to September, 1873, (six months) 

$33,122,000. The net earnings consequently amounted to 

25£ per cent., or 51 per cent, a year on the real capital 

($134,132,672); or 13 per cent., or 26 per cent, a year on the 

real capital and surplus earnings added together ($252,246,- 

Xhese enormous profits operate as a tax on the medium 

■ \ • 


of exchange of the nation, and enter into the price of all 
commodities. They also enable the banks to control the 
circulating medium of the country, and explain why it is 
that periodically money leaves the channels of trade and 
becomes concentrated in the vaults of the banks. 

the panic op 1873. 

The enormous contraction of the circulating medium of 
exchange and evidences of indebtedness of the government, 
which were used as such, inaugurated and carried on by 
McCulloch, together with the operations of the National 
Banking system, began to affect the industries of the coun- 
try injuriously as early as 1867. Mr. Spaulding estimated 
the amount of paper issues which served the purposes of 
currency, on the 30th of January, 1864, at $1,125,877,034, 
and to this amount is to be added several hundred millions 
of 7-30 Treasury notes issued in 1864 and 1865. The greater 
part of this vast sum was called in by the government prior 
to 1868, and its place supplied in part by bank note currency 
and bank credit. Business could no longer be done for 
cash, as was the case when the channels of trade were fully 
supplied with a medium of exchange, and business men were 
compelled, by reason of the growing scarcity of money, to 
resort, as in days before the war, to the banks and borrow 
bank credit. During the year 1866 the banks increased 
their loans (inflated their credit) $107,600,000. As contrac- 
tion went on, bank loans increased, arid it was only a question 
of time as to when the bubble of inflated bank credit would 

That McCulloch and the bankers generally anticipated 
financial distress amongst the people, and probably a com- 
mercial crash and money panic, is clear from the corres- 
pondence between Mr. Spaulding and Secretary McCulloch, 

•See page 20. 


in December, 1866, from which we take the following- 
extracts: Mr. Spaulding, in a letter dated. at his banking 
house in Buffalo, December 4, 1866, to McCulloch, says: 
" You have no doubt now, to a large extent, control of the 
finances of the country (by virtue of the contraction act of 
April 12, 1866), and I think that you will, of necessity, con- 
tract moderately, so as to preserve a tolerably easy money 
market, in order to be able to fund the compound 6's and 
7-30's into long gold bearing bonds between this and the 
15th of July, 1868. There may be occasional spasms and 
tightness for money with the speculators, but generally I 
shall look for plenty of money for legitimate business for 
at least a year to come" To this McCulloch replied, 
December 7, 1866: "What we need is an increase of labor* 
If we could have the productive industry of the country in 
full exercise, we could return to specie payments without 
any very large curtailment of United States notes. My 
object has been to keep the market steady, and to work 
back to specie payments without a financial collapse" 
Whilst thus prating about " having the productive industry 
of the country in full exercise," McCulloch was straining; 
his authority as Secretary of the Treasury to deprive the 
productive industry of the country of its most essential tool, 
a medium of exchange, and give to the banks the entire 
control of its monetary affairs. That a financial collapse or 
commercial crash did not immediately follow the sudden and 
complete retirement of the various forms of indebtedness of 
the government used as a currency, was due, first, to the pro- 
ductive strength of the country which had been enormously 
developed during and after the war, by reason of the abmv 
.dance of money in circulation; second* to the large increase 
of bank note circulation, and the great inflation of bank 
credit which followed; and, third, to the large volume of 


greenback money in the hands of the people, which, not 
being burdened with interest, was as yet beyond the control 
of the banks. 

In 1866 the best 60 day paper ruled in New York City at 
5 to 1 per cent. In January, 1867, the same paper rated at 
8 to 10 per cent., and during the following summer a great 
many failures occurred. The effects of McCulloch's policy 
of contraction began to be seriously felt throughput the 
country. In obedience to public sentiment, Congress was 
•compelled, in January, 1868, to suspend the law authorizing 
the retirement of the legal tender notes (greenbacks.) The 
amount of greenbacks outstanding at this time was $356,- 
000,000. Congress, however, took no action in reference to 
the enormous contraction of paper emissions in other forms. 
'The amount of paper emissions of the government which 
were actively employed as a tool of industry in the produc- 
tion and distribution of wealth in 1865 and 1866 was about 
$1,800,000,000. When McCulloch, under the flimsy pre- 
tense of bringing the country back to "honest money," set 
*out to retire this vast volume of currency, what provision 
.had been made by the government to supply its place? 
None whatever ■, except the establishment of National 
Banks, authorized to issue bank currency to the amount of 
$300,000,000. The practical effect of McCulloch's policy, 
therefore, was simply to deprive the nation of any other 
circulating medium than bank currency. In view of these 
circumstances it is impossible to arrive at any other conclu- 
sion than that McCulloch had deliberately conspired with 
the money power to enrich the bondholders and to give the 
National Banks control of the monetary affairs of the nation. 
The history of the world furnishes no parallel to this gigan- 
tic scheme, having for its object the robbery of a nation 
under cover of law, so successfully carried put by McCulloch 
and his associates. ...-». 

. • * • 



The policy of contraction and the National Banking sys- 
tem together soon wrought a complete revolution in the 
business affairs of the country. In 1865-66 the producing 
forces of the nation were in active operation, producing 
wealth as it had- never been produced before. ."The Ameri- 
can people waked up each new morning to feel that there 
were great duties before them." ' Labor was fully employed 
at the veiy time that McCulloch was hypocritically prating 
about "the need of an increase of labor" and the necessity 
of having "the productive industry of the country in full 
exercise." Business was everywhere done cheaply, because 
it was done for cash, and, as McCulloch himself has since 
admitted, the people, " individually, were free from debt." 
The enormous productive strength of the country was in 
full exercise, and the immense burden of taxation imposed 
by the war was scarcely felt. Indeed, the revenues of the 
government were so large during this period that the public 
debt was extinguished to the amount of about $500,000,000. 

We now turn to what followed. All evidences of indebt- 
edness of the government used as a currency, except the 
greenback, had been retired— paid off or converted into 
long bonds bearing gold interest The National Banking 
system was in the full tide of successful operation. Ijy * 
the act of July, 1870, an additional issue of bank notes, 
to the amount of $54,000,000, was authorized, making in all 
$354,000,000. The entire issue authorized by law was in 
active employment, and bank stock commanded a Kiigh 
premium. The circulating medium of the country in 1869 
consisted of lawful money and bank currency as follows: 

Legal tender notes $356,000,000 

National Bank Currency. 300,000,000 

Fractional Currency about 37,000 ,000 

To this add amount of National Bank eun-ency 

authorized by act of July, 1B10 ' T Afl^jm 


The National Banks of the principal cities were required 
by law to keep on hand in lawful money of the United 
States an amount equal to at least twenty-five per cent, 
of the aggregate amount of their notes in circulation and 
their deposits; and other associations fifteen per cent. As 
bank deposits and loans increased, requiring a proportionate 
increase of the reserve of lawful money, it is manifest that 
a further contraction of the circulating medium followed. 
The following table exhibits' the inflation of bank credit that 
took place from 1866 to 1873: 


Jan. 1,1866 I213,'00»000 $513,600,000 $498,800,000 

" 1867 291,000,000 555,100,000 608,400,000 

" 1868 294,300,000 531,800,000 616,600,000 

July 1,1868 294.900,000 575,800,000 655,700,000 

Jan. 1,1869. 294,400,000 568,500,000 644,900,000 

July 1, 1869 292,700,000 574,300,000 686,600,000 

Jan. 1,1870 392,800^)00 5^,2OO,00Q 6fi8,8p0,Q0O 

July 1, 1870 291,100,000 542,100,000 719,300,000 

Jan. U 1871 302,200,000 501, 900/10$ %830ft,0$fr 

July 1,1871 307,700,000 602,100,000 789,^00,090 

Oct. 1,1872 333,400,004 625,700,000 872,500,000 

Sep. 12*1873 ,839,000,000 <, > 622,600,009 ., < 9#£0$,O$* 

. Instead df $1,8OO;OOO,O00 of paper currency, a large por- 
tion sof Which bore interest in the hands of the' 'holders, 
filling the- channels of tra^'ttte'tousiness of the bVrttatry was 
now carried on with bank curreney and: bank credit (about? 
$1,000,000,000), involving the payment of an eh^rrooils 
tribute to the National Banks for its use. Th6 business of 
the country was no longer done • for cash. Money became 
scarce and commanded a high price, and the price of prop- 
erty fell in a corresponding ratio. New business enterprises 
were no longer thought of. Those already established, yield- 
ing small profits and requiring ready money for their suc- 
cessful operation, were obliged to succumb. The ability of 
the nation to produce wealth was enormcro^ S«Kssaa5eft&~ 
Taxes, which before' were scarcely iel^uo^ X^ttcafc^^SF*^ 


burden. Merchants and manufacturers who were obliged 
to pay interest for money and bank credit added the amount 
to the cost of their goods. The retail dealer was obliged to 
do the same, and the cost of bank currency and bank credit, 
several times multiplied, had to be paid an the end by the 
•consumer, whose ability to pay had, for the same reasons, 
been greatly diminished. Such is the natural course of 
.affairs under a system of currency furnished and controlled 
by banks of issue. The same system had been tried for 
over sixty years prior to the war and had proved utterly- 
unsound. It had inflicted upon the country a commercial 
crash on an average every six years. And the marvelous 
thing is, that notwithstanding all their bitter experience, the 
people of the United States should suffer such a system to 
be re-established in a more powerful and dangerous form 
than ever. During this period the industries of the country 
were sustained and buoyed up in a manner that is worthy 
of special mention. Congress had granted a large number 
of subsidies in the shape of lands to aid in the construction 
of railroads. Bonds secured by mortgages on the lands 
granted by Congress had been negotiated, mostly abroad, 
to the amount of many hundreds of millions of dollars. 
The funds thus acquired contributed largely to the support 
of many industries, which otherwise would have been 
obliged to succumb to McCulloch's policy. Among other 
corporations thus subsidized was the Northern Pacifio Bail- 
road Company, owned and controlled by the banking house 
of Jay Cooke and Company. It was confidently expected 
by Jay Cooke and Company that the bonds of the Northern. 
Pacific Railroad Company could be negotiated abroad. The 
Austrian and German bankers, to whom they were offered, 
however,, sent over two experts to examine the road and the 
ootmtry through which it extended, T\ve^ T«^QTte^%&NSKsafc$, 


to taking the bonds. Jay Cooke and Company then 
attempted to dispose of their bonds to the American public, 
through the aid of the religious press and the clergy of the 
country. Their plan was only partially successful. The 
times had become too stringent, and on the 18th of Septem- 
ber, 1873, the banking house of Jay Cooke and Company 
failed. The country had been ripe for a commercial crash 
for some time, and this brought matters tp a crisis. The 
failure of Jay Cooke and Company was immediately fol- 
lowed by the failure of a number of leading banks in New 
York* City. The Stock Exchange of that city also closed 
its doors for a period of ten days. The preminm on gold 
began to decline, and fell during the month to 7£ per cent. 
Greenbacks commanded a premium over certified checks of 
from i to 3 per cent. The suspension of payments by the 
banks of New York soon extended to all the principal cities 
and towns throughout the country. Exchange on New 
York, which usually commanded a premium, was at a dis- 
count, if not entirely unavailable. The suspension lasted 
about forty days, and the industrial interests of the country 
received a shock from which they have not yet recovered. 
To the great mass of the people, who judge of the pros- 
perity of the country by the activity observable in its business 
affairs, the panic of 1873 was wholly unexpected and came 
like a clap of thunder from a cloudless sky. The harvest 
of the year was about over, and the crops were good. The 
mining and manufacturing interests seemed to be flourishing, 
and to all external appearances there was abundant evidence 
of general prosperity. But, beneath the surface, matters 
presented a very different appearance. The industries of 
the country had been laboring from year to year since 1866 
under an increasing burden imposed by the banks* Bu&v 
nesa had ceased to be done for ca&Yu axA \wssv»r«a \ass^ 



everywhere were carrying a load, more or less, of credit- 
struggling on from year to year in the hope that the coming 
spring or the coming fall would in some way bring a change 
that would afford relief. A temporary spurt in business 
might relieve an individual here and there; but under such 
a system of money there could be no general relief. A 
commercial crash was inevitable. The reason of this is 
easily explained. The average growth of national wealth 
is about three an& one-half per cent, per annum. Individual, 
wealth cannot increase more rapidly than that. The higher 
gains of some are counterbalanced by the lower gains or 
absolute losses of others. As money is an essential tool in 
the production and distribution of wealth, it is important 
that it should be abundant and rule at low rates of interest* 
But under a system of banks of issue money scarcely circu- 
lates at all. It is locked up in bank vaults, and in its stead 
the public is obliged to use bank currency. Bank currency 
can only be obtained by the payment of a high rate of. 
interest. It is, therefore, far more expensive than ev^n gold 
and silver. These metals simply cost their equivalent in 
labor or products. When once obtained they will circulate 
in the channels of trade, whilst they remain in the country,, 
unburdened with interest. Individuals may acquire a sur- 
plus and lend it to others, but this is an individual trans- 
action. The gold or silver thus lent is put to use by the 
borrowers and passes into thQ channels of circulation free 
of interest. The same is time of legal tender paper money 
issued by the government. It costs its face value in labor 
or products to obtain it from the government. It enters into 
circulation unencumbered by interest. Individuals may 
acquire a surplus of legal tender paper money and lend it to 
others. As in the case of gold or silver, this is purely an 
individual transaction. Neither gold nor legal tender paper 


money <san accumulate value except when employed. But 
bank currency constitutes a peculiar medium of exchange 
very different in its nature from gold money or legal tender 
paper money. Bank currency is not money. Bank notes are 
simply evidences of indebtedness of the banks which issue 
them — promises to pay money. They enter into circulation 
encumbered with interest, and continue to accumulate value 
for the bank which issues them, whether they are performing 
the uses of money- or not. For the sake of illustration, say 
that A., a manufacturer, borrows a $100 bank note from a 
National Bank for sixty days at six per cent interest He 
uses this note in the prosecution of his business, and adds 
the interest which he is obliged to pay to the bank to the 
cost of the article manufactured by him. At the expiration 
of sixty days, A., unable to return the identical note bor- 
rowed by him, pays the bank with a $100 greenback. This 
in turn is lent by the bank to B., and so on indefinitely. 
The bank is thus enabled to realize compound interest 
indefinitely on the original note lent to A., which was hot 
money but simply credit — no matter what becomes of it, 
whether it is occupying the channels of circulation or rotting 
at the bottom of the ocean. It is apparent, therefore, that ; 
when the nation uses a medium of exchange consisting of ! 
bank currency it is obliged to pay compound interest for its j 
use. As must be manifest this is a great burden upon the ' 
industries of the nation. The more this kind of currency is 
inflated the heavier will be the burden imposed upon the 
industries of the country. A great deal is said by the money 
power and their organs in regard to the evils of inflation, 
whenever it is proposed to increase the issue of legal tender 
paper money, but nothing is ever said about the real danger, 
which invariably attends the inflation of bank currency and 
bank credit By reference to the table given on page 255, 



showing the deposits and loans of the banks from 1866 to 
1873, it will be seen that the banks inflated their credit from 
$498,800,000 in 1866 to $940,200,000 in 1873. This immense 
sum of inflated credit, bearing compound interest, entered 
into and ramified all the industries of the country, and 
added immensely to the cost of production. 

The following table exhibits the discounts on six months' 
notes for a term of sixty years. "We copy it, along with the 
following explanatory remarks, from Kellogg "A thousand 
dollars in money are taken, and with this sum a note payable 
at six months is discounted. When the first note is paid, a 
second note having six months to run is discounted with its 
proceeds, and a third note with the proceeds of the second. 
This calculation is continued on six months* notes for sixty 
jrears. The table shows the accumulation on $1,000 for 
sixty years, at the various rates of 1, 2, 3, 4, 5, 6, 7, 8, 12, 18, 
24 and 30 per cent, per annum, taking off the discount, as is 
always done by banks and brokers. 


10 yean $1,105 45 

20 " 1,222 02 

30 •' 1,350 87 

«• 1,493 33 

,.... 1,65078 
.... 1,824 87 





10 years $1,222 64 


" 1,494 83 

" 1,827 63 

" 2,234 52 

2,732 00 
3,340 23 


10 years $1,352 93 


" 1,830 46 

•• 2,476 43 

•• 3,350 44 

•• 4,532 91 

•• 6,132 73 


10 years $1,497 89 


•« 2,24$ 66 

•• 3,360 75 

" 5,034 01 

" 7,540 36 

11,294 60 



10 years $1,659 24 

.... 2,753 06 

.... 4,567 97 

.... 7,579 33 

.... 12,575 87 

.... 20,866 35 





10 years $1,838 

20 " 8,381 





6,218 66 

" 11,435 67 

" 21,029 39 

" 38,67158 


lOyears $2,039 17 

" " .... 4,158 22 

.... 8,479 32. 

.r.. 17,290 79 
" 35,258 90 





71,898 92 


10 years $2,262 43 

" " 5,118 59 

" 11,580 46 

•« 26,199 97 

•« h%m no 

" .U4,W!<* 



10 years 
20 " 
30 " 
40 «• 
50 " 
60 •• 

.. $3,447 13 
.. 11,88190 
.. 40,957 07 
.. 141,177 95 
.. 486,644 91 
..1,677,481 45 


10 years 









... $6,594 
... 43,485 
... 286,758 



10 years.... $12,892 78 
.... 166,223 76 
....2,143,086 39 
...27,630,338 24 
..356,231,914 13 
4,592,819,317 86 






10 years, $25,800 11 

665,645 68 

17,173,731 66 

443,064,165 99 

U,43l,620,222 06 







"The highest rate calculated is thirty per cent per annum, 
or two and a half per month, a rate not nearly so high as 
is often paid in Wall street. 

"In the foregoing table it appears that interest at one per 
cent, would transfer $824 worth of the products of labor to 
the capitalists to pay for the use of $1,000 for the sixty 
years; at six per cent, $37,671.58; at seven per cent, 
$70,898.92; and at thirty per cent, $294,956,058,207.37. In 
any community the rise of the rate of interest on all the 
money used, whether for a longer or a shorter period, trans- 
fers from producers to capitalists a sum proportioned to the 
increase of the rate per cent., as demonstrated in this tabled 

The power of money at interest to accumulate value is not 
fully understood or appreciated by the public. The follow- 
ing extract, which will further serve to illustrate this point, 
is taken from an able lecture delivered by Wallace P. 
Groom, Esq., editor and publisher of the New York Mer- 
cantile Journal, on the subject of the " Currency Needs of 

"Many carelessly infer that the increase of money at six 
per cent is just twice as rapid as at three per cent; but in 
reality the increase is vastly more rapid than this. In one 
hundred years, at six per cent, the increase on any given 
sum is about eighteen times as much as at three per cent 

"If one dollar be invested and the interest added to the 
principal annually, at the rates named, we shall have the 
following result as the accumulation of one hundred years: 


ir, 100 years, 

at 1 per cent, 


One dollar, 

100 y'rs, 

, at 7 per cent., $ 866 



2 *» 









i% " 









3 " 









3K " 









4 " 









4K " 









5 " 









6 " 



a There are probably few, however familiar with the sub- 
ject of the rapid increase of capital put out at interest, who 
would not be startled at the statement that the cost of the 
outfit of Cristopher Columbus in his first voyage of discov- 
ery, put at interest at six per cent., would by this time have 
amounted to more than the entire money value of this conti- 
nent, together with the accumulations from the industry of 
those who have lived on it. If any doubt this, let them 
reckon the amount, estimating the entire outfit to have cost 
Only the small sum of five thousand dollars, and remembering 
that money doubles, at six per cent., in a little less than twelve 
years — or accurately in eleven years, ten months and twenty- 
{me days. Allowing it to double every twelve years, this 
five thousand dollars at interest at six per centh, since 1492, 
U will be, found, will have amounted to $17,895,700,000,000; 
vhich, estimating the population of the entire continent of 
.America (North and South) to be eighty-five millions, or 
§eventeen million families (averaging five members each), 
would give more than a million dollars as the possession of 
$yery one of these. The interest upon a million of dollars 
pt aix per cent, is sixty thousand dollars, which would now, 
be the princely annual income of each of these seventeen 
million families from the accumulations up to this time upon 
so small a sum as that named for the outfit of the discoverer." 

But it must not be forgotten that banks of issue do not 
lend capital or money, but simply credit; and in this con- 
sists the great injustice of the system. A single class is 
clothed with authority to emit bills of credit, and compel 
' all other classes to use them as a circulating medium and 
pay compound interest for their use. The fact that the 
government issues the National Bank notes to the banks 
floes not change their nature. It is simply equivalent to the 
government guaranteeing their payment. The notes them,- 


selves represent the credit of the institutions which issue 
them. There is no sound reason why the government 
should confer this privilege upon the bondholder and the 
banker, and not upon the farmer, the merchant or the man- 
ufacturer. On the other hand it is in violation of the plainest 
principles of equity, as well as public policy, for the govern- 
ment to bestow such a privilege upon any class. 

How long it takes the money power, through the ma- 
chinery of banks of issue, to rob the people of their annual 
increase of wealth (3£ per cent.) is not a matter of specula- 
tion. The experience of sixty years demonstrates that the 
system will bring about a commercial crash on an average 
every six years. A commercial crash is simply a general 
settlement and a re-distribution of property rendered neces- 
sary by the natural operations of the system — by the manner 
in which the people are obliged to conduct their affairs. 

The enormous cost of a medium of exchange, consisting 
of bank currency and bank credit, may be arrived at approx- 
imately in several ways. On the 1 st of September, 1 875, there 
were in operation 2,087 National Banks. The net earnings 
of the banks for the previous six months amounted to about 
$30,000,000, or $60,000,000 for the year. The officers of the 
banks, including presidents cashiers, tellers, bookkeepers, 
clerks, attorneys, notaries, etc., constitute an army of non- 
producers. Averaging the number at ten for each bank 
would give 20,000 persons. The chief officers of a bank 
are usually large stockholders, and the subordinate positions 
are mostly filled by their relatives, and in no other business, 
perhaps, do salaries rate so high. Averaging the salaries at 
$2,000 per year each for 20,000 persons will give a total of 
$40,000,000, which, added to the net earnings, gives a grand 
total of $100,000,000 a year. Or, again, the aggregate loans 
and discounts of the National Banks on the first day of 
October, 1875, amounted to $980,222,951. At ten per cent 
interest the amount paid 'for this sum would be over 
$98,000,000. To this add the interest paid by the people 


on the bonds deposited with the Treasurer of the United 
States — about $390,000,000 — at six per cent, in gold— about 
$27,000,000, and it will give a grand total of $127,000,000. 
From this it appears that the people are paying annually to 
the banks the enormous sum of about $127,000,000, a sum 
greater than the interest on the public debt, for the use of 
some $350,000,000 of bank currency. This burden is entirely 
unnecessary. A medium of exchange could and ought to 
be furnished by the government; or, in the language of 
Jefferson, "bank currency should be suppressed and the 
circulation restored to the nation to whom it belongs." The 
people would then have a medium of exchange unencum- 
bered with interest, and, what is vastly more important, one 
that would occupy the channels of circulation, subject only 
to the natural laws of trade. 


The prostration of ail forms of industry which followed 
the panic of 1873 still continues. Indeed, matters are grow- 
ing worse. The following table exhibits the number of 
failures, with the aggregate amount of liabilities, which have 
taken place since 1863: 


Number of Aggregate 

Year. Failures. Liabilities. 

1863 495 $7,899,000 

1864 520 8,579,000 

1865 530 17,625,000 

1866 632 47,333,000 

1867 2,386 86,218,000 

1868 2,197 57,275,000 

1869 2,411 65,246,000 


1870 3,551 88,242,000 

187 1 2,9 15 85,252,000 

1872 4,069 121,056,000 

1873 5,181 228,490,000 

1874 5,695 151,689,000 

1875 '. 7,404 195,289,000 

1876 (first quarter) 2,806 64^44,000 


The failures during 1875, it will be seen, numbered 7,404. 
The failures for the first quarter of 1875 numbered 1,73S; 
and for the first quarter of 1876, 2,806, or an increase of over 
60 per cent, over the corresponding quarter of last year. 
At the same rate the failures this year will reach about 

In times prior to the war, when bank currency was nom- 
inally redeemable in specie, the banks did not hesitate to 
expand their circulation as soon as a general settlement had 
been effected and " confidence had been restored " through 
the instrumentality of the Sheriff, which usually took about 
one year. Business then began to improve, and the banks and 
the people together soon started on another era of inflation 
and speculation, only to wind up in a few years in another 
crash. But now a different condition of affairs exists. 
Gold bears a premium over the lawful money of the country, 
because it is a full legal tender, whilst lawful money (green- 
backs) is only a partial tender. It is true in ante-war times 
bank currency was at a discount as compared with gold, but 
then it was issued at par and the loss fell upon the people. 
Now, however, specie payments have been decreed to take 
place January 1, 1879, and the banks do not intend to 
redeem their notes in specie until the government has first 
furnished them with the specie. Consequently they are 
calling in their circulation. This contributes largely to the 
general depression All transactions, since the passage of 
the law decreeing forced specie resumption, except of the 
most limited character, both in respect to time and amount, 
have naturally ceased. Money is appreciating in value by 
operation of law, and property of all kinds is depreciating in 
a corresponding ratio. No one, with forced specie resumption 
in view, will invest either in property or business. Money is 
borrowed only in cases of great urgency ercicrc ^^qtcX/^xnsA 


for purposes of speculation. As production diminishes the 
people grow poorer and failures multiply. The producing 
forces of the nation are paralyzed for the want of a healthy 
circulation of money, and general bankruptcy and ruin are 
inevitable. As for the money power, it awaits the final 
•convulsion with serene composure. The fall in the price of 
all commodities renders living cheap to all who have an 
income. As their investments are mostly exempt from 
taxation, they are not concerned about the burdens of gov- 
ernment. The appreciation in the value of money and 
bonds, as compared with property of all kinds, which is 
silently going on, is adding enormously to their wealth, and 
when the crisis arrives they will be enabled to reap where 
they have not sown and gather in a rich harvest. 


When the panic of 1873 occurred the bullionists and the 
. money power generally raised the old cry of extravagance 
and over production. The same cry has been used to account 
for every crash that has occurred during the present century. 
The charge of extravagance scarcely requires refutation. The 
producing classes ais a rule are anything but extravagant. 
The farmers, with the help of their wives, sons and daugh- 
ters, as is well known, are enabled only by hard labor and 
strict economy to come out ahead at the end of each year. 
The same is true of the mechanics, the trades people, the 
laborers, and the toiling masses generally. The only extrav- 
agance that has developed itself to any extent in the United 
States is among those who, by means of corrupt legislation 
and a false monetary system, are enabled to riot in wealth 
stolen from the people. 


The cry of over production is equally groundless. Human 
Ingenuity is being constantly taxed to increase and cheapen 


jproduction, in order that the good things of life may be 
within the. reach of all. The production of commodities is 
governed entirely by the laws of supply and demand. 
"When it happens, as at the present time, that productive 
industry in many forms becomes paralyzed, on account of 
the want of a healthy circulation of money in the channels 
of trade, large classes are deprived of the means of supply- 
ing their wants, and the markets become suddenly gorged 
with certain commodities. For the sake of illustration we 
give the following table exhibiting the comparative produc- 
tion of five staple articles in 1860 and 1870, five years after 
the termination of the war: 


Cotton, 2,200,000,000 lbs. 
Hemp, 149,000,000 " 
Rice, 187,000,000 " 

Silk, 12,000 " 

Tobacco, 434,000,000 " 



1,200,000,000 lbs. 

49 per cent. 

25,000,000 " 

83 " 

73,000,000 " 

60 " 

4,000 " 

66 " 

262,000,000 " 

40 " 

Total, 2,970,012,000 1,560,004,000 52 

Daring this period the manufacturing establishments of 
the country increased in number from 140,433 to 252,148, 
And their products from $1,885,861,676 to $4,232,325,442; 
and the population of the country increased from 31,443,321 

That over production can produce a commercial crash is 
now acknowledged by all political economists, whose opin- 
ions are entitled to any weight, to be an exploded fallacy. 
John Stuart Mill, in his work on political economy, says: 

u A general over-supply or excess of all commodities above 
the demand, so far as demand consists in means of payment, 
is thus shown to be an impossibility. I have already 
described the state of the markets for commodities which 
accompanies what is termed a commercial crisis. At such 


times there is really an excess of all commodities above die 
money demand — in other words, there is an under-supply of 
money. But it is a great erroi to suppose that a commercial 
crisis is the result of a general ,excess of production." 

And E. Peshine Smith, a distinguished American political 
economist, disposes of the question as follows: 

"In treating of supply and demand, no reference has been 
made to the notion, by which some writers have been 
bewildered, of a general over production in commodities. 
The proposition that any good thing has ever been produced 
in excess of the wants of humanity will not bear a moment's 
examination; nor is there the slightest reason to apprehend 
that such an event is likely to occur. The truth of the 
matter may be quite as correctly rendered by the statement 
that the supply of other commodities is deficient, as that 
any particular one is redundant. Where has it been, in any 
community, sufficiently numerous to permit the application 
of the general considerations in which political economy 
deals, that any product of industry has been offered in suck 
a quantity as to surpass what the comfort of all its members 
would require? The trouble is, that many of those who 
would gladly be consumers have not produced enough to 
enable them to be. The true remedy for what is called 
over production in any article is an increased production of 
other things." 

When Congress convened in December, 18*73, there was 
a strong public sentiment in favor of increasing the amount 
of legal tender paper money. The people as a body have 
never failed, when an opportunity offered, to signify their 
preference for legal tender Treasury notes. This is undoubt- 
edly to be attributed to "the instinctive sagacity of the 
people" to use Benton's language, "which is an overmatch 
for book-learning; and which "being \X\a ts&>&X» ol c^&s&ss^ 


sense, is usually right; and being disinterested, is always 
honest." In obedience to this sentiment Congress passed a 
bill authorizing the Secretary of the Treasury to reissue 
$44,000,000 of legal tender Treasury notes which had been 
retired under the policy of contraction. This step would 
undoubtedly have afforded great relief to the oppressed 
industries of the country, but it would have been only tem- 
porary. In a short time the whole amount would have been 
absorbed by the banks. Individuals here and there would 
have been benefited, but in the end the nation would have 
been as poorly off as ever. The money power, however, 
was unwilling to have its plans interfered with to even this 
extent; a howl was at once set up by their organs against 
inflation, and a large delegation of bankers, requiring a 
special train of cars, at once proceeded to Washington to 
induce the President to interpose his veto. They succeeded 
as usual, and on the 2 2d of April, 1874, the bill was returned 
to Congress with the President's veto. Five months prior 
to this President Grant, in his annual message, argued 
that the panic was due to the great contraction of the cur- 
rency that had taken place, and referred to the greenback 
in the following eulogistic terms. He said: "The experi- 
ence of the present panic has proved that the currency of 
the country, based as it is upon the credit of the country, is 
the best that has ever been devised. Usually in times of 
such trials, currency has become worthless, or so much 
depreciated in value as to inflate the values of all the neces- 
saries of life as compared with the currency. Every one 
holding it has been anxious to dispose of it on any terms. 
Now we witness the reverse. Holders of currency hoard 
it as they did gold in former experiences of a like nature." 
Public indignation at this betrayal of the interests of the 
people by the President found vent at t\v* ^0\* *X» ^a \sssiX 


general election, and a Democratic House of Representative* 
was elected by an overwhelming majority. 

When Congress met in December, 1874, it was apparent 
that some measure, looking to the relief of the oppressed 
industries of the country, must be adopted. The result of 
the election also occasioned great consternation among the 
bullionists and bondholders. Their plans had not been fully 
carried out. Specie resumption had not yet been attained. 
They could manage Congress as it was then constituted, but 
their influence with a new Congress was not so well assured. 
An act to force specie resumption was at once prepared and 
entrusted to that subservient tool of the money power, Sena- 
tor Sherman. It was introduced in the Senate at an early- 
period in the session, was passed by both housos and was- 
signed by the President on the 14th of January, 1875. In 
order to deceive the public, banking was made free, a 
measure that had been contemplated from the beginning, 
and which, as has since been fully demonstrated, could con* 
tribute nothing to the relief of the public. The banks at the 
time had abundance of currency, and there were several 
millions of bank note circulation assigned to States having: 
less than their quota, not yet taken. It is now possible for 
the bondholders to inflate the bank currency of the country 
to the full amount of the bonded indebtedness of the Federal 
Government, about $1,700,000,000. That advantage is not 
taken of this act to increase the bank note circulation is doe 
entirely to the specie resumption act. Banks, on the con- 
trary, are withdrawing their circulation and going out of 
business. Two hundred National Banks have already with- 
drawn their circulation, as is disclosed by the records of the 
office of the Comptroller of the Currency, and four hundred 
more are engaged in doing the same. The amount of 
National Bank note circulation withdrawn during the paat 


year is $13,482,546, and the legal tender notes held on 
deposit for the redemption of National Bank notes in process 
of retirement amount to $27,098,429, making in all a con- 
traction of $40,580,975. During the same period the green- 
back circulation has been contracted $11,244,752, and the 
fractional currency $2,758,278. 


The specie resumption act, passed in January, 1875, pro- 
vided for the retirement of the fractional currency issued 
by the government. Long before specie payments are 
resumed the nation will be deprived of a circulating medium 
of any kind. Under the specie basis system of banking, as 
it existed before the war, the people were frequently driven, 
in times of great stringency, to use the notes of individuals, 
firms and corporations, which circulated under the name of 
ahinplasters, and cities, towns and boroughs were obliged 
to issue promises to pay, which were commonly known as 
scrip. To prevent the people, in the approaching stringency, 
from availing themselves of even this method of relief and 
to give the National Banks absolute control over the circu- 
lating medium of the country, an act, approved February 8, 
1875, was passed by Congress, which imposes a penalty of 
ten per cent, on any individual, firm, association, city, town 
or municipal corporation, except National Banks, that shall 
issue or use such notes. This bill was smuggled through 
Congress under the title of an act " To amend existing cus- 
toms and internal revenue laws and for other purposes," and 
reads as follows: "Section 19. That every person, firm, 
association other than National Bank associations, and 
every corporation, State bank, or State banking association, 
shall pay a tax of ten per centum on the amount of their 
own notes used for circulation and paid out by them." 

u Section 20. That every such person, firm, association, 


corporation, State bank, or State banking association, and 
also every National Banking association, shall pay a like tax 
of ten per centum on the amount of notes of any person, 
firm, association other than a National Banking association, 
or of any corporation, State bank, or State banking associa- 
tion, or of any town, city, or municipal corporation, used for 
circulation and paid out by them." The National Banks 
evidently expect, in due time, to furnish the entire circulation 
of the nation, including fractional currency. 

When specie resumption takes place it will be found that 
the greenbacks will all be in the possession of the banks. 
The reserve held by the National Banks, on the first day of 
October, 1875, amounted to $235,000,000. They have still 
over two years to gather in the greenbacks that are still out- 
standing. On the 1st of January, 1879, the government will 
be called upon to pay* 'the sum of $300,000,000 in specie to 
redeem the greenbacks. The banks will then be in posses- 
sion of fibuhdant specie, furnished at the expense of the 
people, to enable them to begin banking on a genuine specie 
basis, in the manner in which banking was conducted prior 
to the war. In the meantime the nation will be entirely 
stripped of a medium of exchange, involving an almost entire 
cessation of production, attended by general ruin and bank- 
ruptcy. The suffering, want and misery, which the people 
of the United States will be called upon to endure, during 
the next few years, on account of the machinations of the 
money power, will be terrible beyond that experienced by 
any nation in modern times, not even excepting the expe- 
rience of the people of Great Britain, under like circum- 
stances, in 1819-25. (See next chapter.) Beyond that it is 
idle to speculate, for then there will probably be no National 
Banks, unless the liberties of the American people shall, 
in the meantime, have been entireVy «vfla\fcYte3u 



A premium was placed on gold by the first legal tender 

act, passed February 25, 1862, which declared that interest 

on United States bonds and duties on imports should be 

paid in coin. This was not only unnecessary, but was in 

violation of the plainest principles of public policy. The 

people were obliged to respond to the requirements of the 

government, and a mediuin%of exchange was absolutely 

necessary to enable them to render their resources available, 

to the government. It was manifest that this medium of 

exchange had to be supplied by the government, and it 

could be done only by issuing public notes, made a full 

legal tender. In no other way than by making the public 

note a full legal tender was it possible to place the people 

all on the same platform with respect to the government 

and to each other, and compel each individual in the nation 

to bear his proportionate share of the public burden. These 

principles were fully embodied' in the original legal tender 

act as it passed the House of Representatives, but the sharks 

of Wall street and the money power generally perceivefd 

that if it became a law they would be deprived bf all pbwer 

to shave either the government or the people. The passage 

of the bill, therefore, met with a degperatfe opposition in the ! 

Senate'. In the conference between the committees bf the 

Senate and the House which 1 followed, the Seriate c6nrmittee' 

was stubborn and the H6uie'comrnitte8 was obliged to yield. ! 

l*Ke Hon Thaddeus Steve^i* declared; WhiWt«heddin^feittftr 

te*ra over the result, that the Houae comm\\Xfe* ^^aX^^- 



until it found that either the banks must be gratified or the 
country be lost * 

The only plea or justification offered for making the 
interest on the bond^ ,nayahle r m gftld was that it would 
induce capitalists to invest in them. Subsequent events 
have wholfy disproTedi the necessity oft any; such, step. As 
a matter, of ijact tjie war was, carried on for over a year w^th 
partial legal tender paper, money (greenback^) % and the 
$5pQ,Q00,Q00 of bonds authorized by Congress were in. the 
end taken at par by the people (not capitalists or bankers) 
oiit.of a spirit of patriotism. If further proof, is.requirecf. it 
is to be found in the fact that the currency bonds of| the 
government to-day command a higher premium than the 
go/14 bonds, simply because they have a, longer time to run. 
leaving made the interest on the bonds payable in gold, duties t 
on imports were made payable in. gold in order, to r obtain the 
gpljjl to pay the interest on the bonds. This was &]&o entjrely 
unnecessary. No bonds, as we have mentioned, were issued . 
for over a,year, and as tte interest woulfl not falL due until 
six months after they were issued, the government t woul4 
then have had. ample, time to devise a way to obtain the 
nece^ary gold. . . 

.^jefectjio^ ma^g. ,t^e,.ji}$eKej$ on gpy f ernment bpn&i, 
an^dqties Qnimpprts, payable^ in, gpjd, was to impose a. tax, 
op all, foreign, commodities for th,e ( benefit of the bankers^ 
bn^ipnip^ an^ ^dh^l^iis^anjj Jo greasy disarrange ftp . 
monetary, ajffair^ of tJ^p country. ; 4, greajt many people a>r^ 
paxtia^ly, reconciled, to th^ payment of this tax under th# 
inipiafcen, belief that it inures in ^ome way to the ajivanla^Q. 
ojj; tj*e, $,oy$xn went, Such is npt the £ apt. Commodities are. 
purcha^d a^)f\>a^ wi,^ American products; and the price of 
^m^qan ^produgt»aljro^4 w.rejgula^d soMy hy t^lajpnt^ 

i I »♦ • * 

t ' -11 



supply and demand. The total imports and exports of the 
United States for the years 18*73 and 1874 were as follows: 

Imports in 1873 $642,136,210 • 

Exports " , 575,??7,Ol7 

Balance against United States. . $66,909,193 

Exports in 1874 . . $633,339,368 

Imports " 507,400,342 

Balance in favor of United States $65,933,026 

Balance against the United States in two years, $976,167 

It appears, therefore, that the imports and exports of the 
United States during the two years (1873 and 1874) balanced 
each other to within less than one million of dollars.. The 
exchange of commodities between different nations is effected 
principally by means of bills of exchange. The manner in 
which this is done is thus referred to by Colw^I: "If the 
United States and Great Britain have mutually exported to 
each other commodities to the value of $100,000,000, the 
amount is adjusted by the familiar process of bills of 
exchange. He who has exported commodities to ihe value; 
of $10,000 is paid when he sells a bill for the amount* The 
adjustment proceeds afterwards without any further trouble 
on his part. The bills are concentrated in a few hands in 
each country. If a house in London purchases in each week 
a million of dollars of American paper, and a house in New 
York with which it is in business relations purchases a^ 
million of dollars each week in bills on London, it is easy to 
see that it requires no money to pay to each other the two 
millions. As business is generally conducted, the bills are 
forwarded from this country, and the respective claims are 
balanced and extinguished on the books of the London 
house." After an adjustment is thus effected the balance is 


paid in bullion. As this process is going on constantly, 
bullion (gold and silver) will flow into the country when 
the* exports exceed the imports, and out of the country when 
the imports exceed the exports. In order to cause gold to 
flow into and remain in the country, it is manifest, there- 
fore, that the thing to do is to develop the producing forces 
of the country to such an extent as will enable it to export 
more than it imports. This fact was fully recognized and 
endorsed by President Grant in his annual message in 1873. 
He said: "My own judgment is * * that a specie basis 
cannot be reached and maintained until our exports, exclu- 
sive of gold, pay for our imports, interest due abroad, and 
other specie obligations, or so nearly so as to leave an 
appreciable accumulation of the precious metals in the 
♦country from the products of our mines." 

When foreign commodities are received in the United 
States the merchant to whom they are consigned is obliged 
to pay the custom duties, established by law, in gold. 
Bankers and brokers deal in gold, and sell it at the highest 
price that they can get. During the war it will be remem- 
bered that the bullionists succeeded in running up the pre- 
mium on gold to as high as $1.85£ over the lawful money 
of the country, while the volume of the currency and the 
price of domestic products remained unchanged. This of 
course added greatly to the cost of all imported articles. 
The premium on gold, which was paid by the merchant in 
the first place and by the people in the end, was a clear 
profit to the bullionists. Until 1864 no gold was required by 
the government to pay interest on bonds, consequently the 
burden thus imposed on the people was entirely unnecessary, 
and inured to the advantage of no one except the dealers in 
gold. If the war had terminated in the early part of 1863, 
there would have been no necessity for issuing any gold 


interest bonds at all. The total funded and unfunded debt 
of the government then was only $783,804,252, consisting 
chiefly of legal tender notes, 7-30 Treasury notes and certifi- 
cates of indebtedness, all of which could have been called 
in, or provided for, by taxation in two years, if desired. 
But the bullionists had their plans well laid. The Treasury 
notes bearing interest were purposely made payable in one> 
two and three years, in order that, as soon as the gold 
interest bonds were issued, they could be advantageously 
converted into money and the proceeds invested in bonds. 
With the gold of the country and the bonds both in their 
possession, the business of selling gold was wonderfully 
simplified. The bankers and bullionists sold their gold to 
the merchant to pay the government, and the government 
immediately returned it in the shape of interest on bonds to 
the banker and bullionist. Under this arrangement it was 
not even necessary to transfer the gold from the vaults of 
the banks. The whole matter could be adjusted by means 
of gold certificates and checks. 

The amount of gold held by the National Banks, at any one 
time during the past ten years, would scarcely have sufficed 
to pay the duties on imports at New York City alone for 
two weeks. On the 1st of October, 1875, the gold held by 
the National Banks of New York City was $4,955,624, of 
which sum $4,201,720 was in U. S. gold certificates and 
only $753,904 in coin. The amount received by the govern- 
ment for duties on imports during the past ten years has 
averaged $180,000,000 a year, or in all $1,800,000,000; the 
interest on the public debt for the same period has been 
about $100,000,000 a year, or in all $1,000,000,000. It is 
manifest, therefore, that if the payment of duties on imports 
and interest on bonds in gold was m>t a pure fiction, the 
government could have accumulated $800,000,000 of gold 
in the past ten years. 

2fS KESTOlrFmOtf OF specie payments* 

Since specie resumption became desirable to the bullionistai 
'and bankers, it is common to hear it asserted that the differ* 
ence between paper money and gold compels the people of 
the United States to trade with the rest of the world at a 
disadvantage. This would imply that foreigners are enabled 
to reap some advantage on account of the premium on gold 
in the United States. A moment's consideration will satisfy 
any one that this is not true. Foreign commodities, as we 
have seen, are purchased with American products. The 
premium paid by Americans on gold and for bills of • 
exchange is not an essential part of the transaction. The 
products of America are sold in foreign markets at the 
Tuling price there, and with the proceeds commodities are 
purchased in turn. To say that American products sell for 
any more or less in foreign markets because of the premium 
on gold in the United States is simply absurd. As has 
already been suggested, not even the interest on the bonds 
held abroad is paid in gold. It is paid in products, against 
which bills of exchange are drawn. When the exports of the 
United States fall short the balance is paid in bullion, the 
product of our mines; and this would be done just the same 
whether there were any bonds held abroad or not. The 
same is true of the bonds held at home. Interest on them 
is paid in current money at gold rates. The conclusion, 
then, is unavoidable that the only persons who are benefited 
by the premium on gold, established by the legal tender act, 
are the bullionists and bondholders of the United States. 

The bankers and bullionists having secured possession 
of the bonds, their convertibility with greenbacks was 
then taken away, and they were also exempted from 
taxation. The origiAl loan of $500,000,000 of 5-20 bonds 
has been retired or- converted, into gold bonds. By the 
act of March 18, 1869, the Secretary of the Treasury ii 



^forbidden to redeem any of the 5-20 bonds, payable in 
lawful money, still outstanding (some several hundred mil- 
lions) until greenbacks are on a par with gold. The bonds 
of the United States now command a high premium. ^£\xb 
following is a list of the quotations of United States bonds 
on the 26th of April, 1876: 

U. S. 6 per cent, bonds of 1881 122 

V. S. 5-20 bonds of 1865, Nov.. ..... 1 L 18 

C. S. 5-20 bonds of 1865, July am. 

U. S. 5-20 bonds of 1867, July. . ■. . . . ; ... 1?^ 

tT. S. 5-20 bonds of 1868, July 122| 

U. B. 5 per cent. 10-40 bonds llfcf 

<U. S. 5 per cent, funded loan bonds. 11$£ 

U. S. 6 per cent, currency bonds . . 126£ 

The money power having thug succeeded in robbing the 
people to the utmost extent in this direction, it is now pro- 
posed to continue the process by means of Bpecie resumption. 
The action of the bullionists and bankers, in this particular*, 
was hastened, as we have seen, by the result of the elections 
in 1874. 


Soon after Congress convened in December, 1874, a specie 
resumption act was hurried through that body : and was 
approved by the President, January 14, 1875. The act pro- 
vides as follows: 

. 5tie first section requires the Secretary of the Treasury^ 
as rapidly as practicable, to cause to be coined, silver coins 
<tf the denominations of ten, twenty-five and fifty cents, W 
fefcandard value, and to issue them in redemption of ah equal 
liumber and amount of fractional currency, until the whole 
amount of such fractional currency outstanding shall be 

The second section repeals the authority to charge a 
per centage for coining bullion. 

The third section repeals so much of the National iBank* 


ipg law as limits the aggregate circulation of the banks to 
$354,000,000, and makes banking free to bondholders. It 
also provides that "on and after the 1st day of January, 
1879, the Secretary of the Treasury shall redeem in coin the 
United States legal tender notes then outstanding, on their 
presentation for redemption in sums of not less than fifty 

The greenback, although issued in a mutilated form, (not 
payable for interest on bonds and duties on imports) was 
made a legal tender for private debts. It was not, therefore, 
simply an evidence of indebtedness ' of the government — a 
mere promise to pay money; it was something more than 
that. It became the measure of all values, the basis of all 
money contracts, and the standard of all payments among 
the people. For fourteen years it has constituted the 
lawful money of the country. All exchanges of property, 
during this period, have been made and all existing debts 
have been contracted on the basis of greenback money. 
If the standard of payment is changed, all existing indebt- 
edness will change with it. For example if A. owes B. 
$10,000 and he is compelled to pay the amount in gold, 
which rules at say $1.12, he is obliged to pay $11,200 
instead of $10,000. When the entire indebtedness of the 
country, individual, corporate and municipal, is taken into 
consideration, it will be seen that the amount thus added 
by changing the standard of payment is enormous. Estima- 
ting the aggregate indebtedness of the country, of individ 
uals, towns, cities, townships, counties, states, railroads and 
other corporations,, at $10,000,000,000, the amount would be 
increased $1,200,000,000. 

The alteration of the coinage of a nation is universally 
regarded as a matter of the greatest delicacy, only to be 
attempted when absolutely required by the highest consid- 
eratipnQ of public policy. When the legal tender act waa 


pending the only plausible argument offered by the money 
power against its passage, was that it would work injustice 
to the creditor class, by enabling debtors to pay their debts 
in a depreciated money. The specie resumption law, how- 
ever, compels the debtor class to pay one-eighth more than 
it contracted to pay, and the debtor class, owing to the 
workings of contraction and the National Banking system, 
now embraces all the industrial classes of the country. No 
alteration of the coinage was ever attempted by any nation 
that would at all compare with this. 

(The bondholders have provided against any alteration of 
the coinage so far as they are concerned. The act of Con- 
gress of July 14, 1870, for refunding the public debt pro- 
vides that the bonds shall be redeemed "in coin of the 
present standard value") 

The amount of gold in the country, in view of the resump- 
tion of specie payments, has become a matter of serious 
importance, because the circulation of the country, whether 
the gold is actually used as a medium of exchange, or made 
tfie basis of a bank note currency, as in times prior to the 
war will necessarily be limited by the amount of gold on 
hand. On the 27th of February, 1876, the Secretary of the 
TVeasury, in response to a resolution passed by the House of 
Representatives calling for a statement of the gold coin in the 
possession of the government, submitted the following report: 

Coin coupons $1,547,402 06 

Coin certificates. 1,427,200 00 

Sinking fund and interest 1,873,825 00 

Bonds redeemed and interest 13,832,553 65 

Interest due and unpaid 9,254,634 50 

Outstanding bonds called for sinking fund . 2,548,000 00 

Outstanding coin certificates 33,968,300 00 

Silver coin and bullion . . . . 14,193,618 70 

$78,645,533 91 
Actual gold coin available 13,341,423 76 

• ,.-• Total $91,986,957 at 


By the terms of the specie resumption act the goyerttfftedrt 
will be required to redeem the legal tender notes outstanding 
on the first of January, 1879, ($300,000,000) in coin. Thfe 
will take nearly $290,000,000 more coin than there is avail- 
able gold in the Treasury. Where and how is this immense 
amount of gold to be obtained? The estimated product 
of the mines of the United States for the past three years 
has been about $50,000,000 a year. The annual interest 
On the public debt, one-half of which, it is estimated, is lieH 
abroad, is about $100,000,000. As long as the imports iX 
the country exceed the exports, the difference will have to 
be made up in specie. The imports of the United States afe 
a rule have exceeded the exports for many years past, an& 
to such an extent, that notwithstanding the enormous yield of 
American mines, there is not at the present time $100,000,006 
of specie in the country. And now that the productive 
ability of the nation has been greatly diminished, and is stiM 
diminishing under the operations of contraction and ©f the 
National Banking system, the excess of imports over exportb 
must naturally increase^ and thus augment the necessity > fw 
sending the product of- American mines to foreign couritrifcfc. 
It is clear; therefore, that until the producing forces of tfcte 
nation are sufficiently developed to enable it to export morfe 
than it imports, there can be no accumulation of got A 
obtained from the mines of the country. The amount 
required to resume specie payments then, if obtained at all, 
must come from other nations. The demand for gold at 
the present time abroad is unusually great on account of the 
demonetization of silver in Germany and other countries. 
The government of the United States has already had some 
experience in trying to obtain gold in Europe. When the 
gold bonds of the United States were put on the market In 
Ifurorpe, $21,<JOO,000, resulting from their sale, accumulated 


in the Bank of England. The Bank of England objected 
to the transfer of this sum to the United States, and the 
government was forced to turn round and invest it in other 
bonds, which had been purchased probably at less than 60 
cents on the dollar. Senator Boutwell detailed the facts in 
this case, in a speech in the United States Senate, January 
22, 1874, as follows: "When the negotiations were going 
on in London for the sale of the largest amount of United 
States bonds that have ever been sold there at one time, it 
was foreseen by the Bank of England that a quantity of 
«oin would accumulate as the proceeds of these bonds to 
the credit of the government of the United States. As a 
matter of fact, there was an accumulation of about $21,000,- 
000. The Bank of England, foreseeing that there would be 
an accumulation of coin to the credit of the United States 
which might be taken away bodily in specie, gave notice 
to the officers of the Treasury Department of the United 
States that the power of that institution would be arrayed 
against the whole proceeding unless we gave a pledge that 
the coin should not be removed, and that we would reinvest 
it in the bonds of the United States as they were offered 
in the markets of London. We were compelled to do it." 
14r. Boutwell also mentioned another case in point, which is 
equally significant, as follows: "There is another fact, 
known to all. We recovered at Geneva an award against 
Great Britain of $15,500,000. When this claim was matu- 
ring, the banking and commercial classes of Great Britain 
induced the government to interpose, and by diplomatic 
arrangements through the State Department here, operating 
upon the Treasury Department, secured the transfer of secu- 
rities and thus avoided the transfer of coin. In the presence 
of these facts, is it to be assumed for a moment that we caa 
go into the markets of the world and purchase coin with. 



which we can redeem one, two, three or four hundred mil- 
lions of outstanding legal tender notes." 

If any further argument is required to show that it is not 
only utterly impossible for the government of the United 
States to obtain the requisite amount of gold to resume 
specie payment at a fixed time, but that it is also undesirable, 
even if it were possible, because it would disturb all the 
industrial and social relations of the world, it will be found 
in the following extract from an able speech delivered on 
the 26th of April, 1876, by Senator Jones in the Senate of 
the United States, in favor of placing silver on an equality 
with gold as a medium of exchange. He said: 

"The world's stock of coin is $5,700,000,000, of which 
nearly one-half is silver. Of this sum Europe, America, and 
the rest of the Occidental world employ about $3,600,000,000. 
Previous to the late demonetizations of silver in the Latin 
union, and in Germany and the United States, these $3,600,- 
000,000 consisted of, let us say, $2,000,000,000 of gold 
and $1,600,000,000 of silver. They now consist of about 
$2,600,000,000 gold and $1,000,000,000 silver. By continu- 
ing to exclude silver from equal participation with gold in 
the currency of the United States and attempting to resume 
specie payments, we occasion a demand for say $350,000,000 
of gold wherewith to pay off the greenbacks and furnish 
bank reserves, and $50,000,000 of silver in lieu of the frac- 
tional notes. If we could obtain these $400,000,000 of 
metal without drawing it from other countries in Europe or 
America, they would add so much to the stock of coin in 
•he Occidental world, which would then be $2,950,000,000 
of gold and $1,050,000,000 of silver. This is the answer to 
the question so far as the Occidental world is concerned 
The quantity of the precious metals needed for money and 
the basis of credit in the Occidental world — that is to saj^ 

RfcStTArt>ttOtf Otf SPECIBi PAYMfiMTS. 285 

the quantity Deeded to maintain prices at their present level 
— is at least $4,000,000,000. Of this sum the United States, 
if it succeeds in resuming specie payments, will hold about 
$400,000,000, of which $350,000,000 must be in gold. 
Where is it to come from? 

" Anticipatinsr the argument that no such sum is necessary 
to specie resumption, because prior to suspension in 1862 
our entire stock of coin included not more than $225,000,000 
of gold, he reminded the Senate that population since then 
had increased 50 per cent., and that in 1861 our whole circu- 
lating medium consisted of $300,000,000 in coin and $200,- 
000,000 in bank notes, which circulated within limited areas 
at nearly par; whereas now it consists of not more than 
$100,000,000 of coin and some $850,000,000 of government 
and bank paper, the latter circulating (throughout nearly the 
whole country) at about 87£ cents on the dollar; say total 
circulation at par equal to $850,000,000. This is 70 per 
cent, more than the par circulation of 1861, anincontestible 
proof that the exchanges have increased in volume at least 
70 per cent. It cannot be doubted that the bulk of to-day's 
exchanges in this country is at least double that of a corres- 
ponding day in 1862. Put it at only 70 per cent, higher; 
then, in order to resume specie payments upon at least as 
firm a footing as specie payments in 1861, we shall require 
at least 70 per cent, more specie than we employed in 1861. 
Add 70 per cent, to $300,000,000 and you have $510,000,000. 
Allow $100,000,000 for specie already in the country, in the 
banks, in private hands, and in the vaults of the Treasury, 
and you will need $410,000,000 in order to resume, say, for 
round figures, $400,000,000 of specie, of which, under the 
operation of the act of 1873, about $350,000,000 must be 

"I warn gentlemen to beware of making a mistake in 



respect to this matter, for a mistake will set us back many 
years. The British government tried to resume in 1817, 
after a suspension of 20 years, but it failed, and suspension 
was deferred until 1823. If we try to resume in 1879 with 
$100,000,000 and fail, we may be set back a quarter of a 
century. Moreover* if we fail, -some clique of stock gam- 
blers will make 15 or 20 per cent, out of the operation. 
Knowing that $100,Q00,000 was the limit of the government's 
ability to pay, they could easily make arrangements with the 
banks and depositories throughout the country to withdraw 
$100,000,000 of greenbacks on the eve of the day of resump- 
tion, and present them for payment at the Treasury After 
leaving drawn the last dollar of specie out of the latter, they 
pould, by presenting an additional note, compel it to suspend 
again. Then gold would go up once more, perhaps to the 
full extent of the figure from which it would have fallen, 
and the clique could sell their specie in the market and 
r^ize their profit, We cannot resume with $100,000,000 
iptqr.with $200,000,000. We have had $200,000,000 in specie 
in the Treasury on several occasions during the. paqt ten 
years, If it is practicable to resume now with $100,000,pOQ, 
Wjhy was it; not practicable on those occasions with $200,- 
0Q0,0pO? It was certainly not for lack of desire on the part 
qf ttye (Secretary of the Treasury, but simply that both the 
Secretary and Congress saw that the thing could not be 
dpne. Where are the needed $350,000,000 in gold to come 
fyom? The annual gold product of the world is $97,000,DOQ. 
More than half of this is needed in the arts. One and a half 
per cent, on $2,600,000,000, the present Occidental stock, is 
needed for the maintenance of money to replace abrasion 
$nd lo$s. This is $39>000,000. Deduct these sums and there 
remains a surplus of $10,000,000 a year, out of which onr 
j^ed#& Iftl 0,000,000 must come, unless it conies ou,t of the 


exi$jng ^(ook in other countries. It ^ould take ?5. yea^s, to 
i^ccomplish the result upon the most favorable hypothesis^, 

"But the increased population, of the Occidental w#0d 
Y,ill wke increased demand for gold exchanges and for ita 
i^se in arts equal to at least $6,000,000 annually, and the 
annual product of gold is diminishing instead 0I ! i n PTG99Wg* 
"VJSTheijL these elements of th$ cirqulation are a}l, mpdsratoiy 
provided for, there will remain perhaps $50jQ[/)9.0 p$r aur 
qurn of surplus, taking 700 years to get our i£5()[,6oQ,pp(k 
^n.4 even this cannot be done unless Austria, Italy an4 
Ri&ssjia shall leave, us to monopolize all the gold we need 
Ijefore t^ey reform their own debased currency. X tell you* 
gentlemen, the thing cannot be done. Redemption, in goixjL 
is, QVf, qf tfce, qugs&on.. It is not practical financially, metal- 
lujjgicflJJjy, mternationally, or politically; ig. short, it i* nqt 
PWtipa). a,t all. 

"JtyQ stock of coin w^ch forms t^e substratum, o$ tk^ 
^qrl^'s prices is tjie a#cun*^#pn of 50. Q^njbu^ips, ai*4 ^W 
^^b^^wa^ev^ry; day which coy^r, lojjig p^i(# ( 
o$ tflBfl. To, djsturl} th$se prices., ajiji conjrafitp ,^y forcing 
the exchanges of tfcfr country to fo© measur$4 ;&#,$ sum, of* 
spgcfo s.9 vastly le$a than, its usual measure, as, f^OQG^pO, 
or e^en $g0jQ,00O,0OQ > woujd be, tantamount, to t^P viqlgftt 
dfjf^oj^piff.of vast interests and a wrenching <$ all{ &% 
r$^tio:us of industrial ancl spcial life.. ,-.,..••. 

"The Senator proceeded to argue that W <<& Bn #t g«t, tk$. 
gplcf from Europe^ w^tt* which to resume, because its wtyote 
snpply is only $2 ? 6QQ,000,000, and on every one qi these 
dollars stands a vast and almost toppling superstructure of, 
credit in every conceivable form. Try to buy one sixth or 
sgy;$nth of that amount, and the rate o^ interest would go 
Up in. Europe in order to check tfte outflow of gold; and) bo. 
%, pjioe. of jjpty woul# riaet until, in Qr,d$r to c$aur§ it |h* 


amount required, we would be obliged to sell all our mova- 
bles at prices that would bankrupt every interest in the 
country. We might get $50,000,000 or $100,000,000 possi- 
bly, but it would be at the expense of a tremendous financial 
convulsion abroad, reacting with equally alarming disaster 
to ourselves. Recollect that the problem is that of taking 
$350,000,000 in gold out of a fully occupied and heavily 
overtopped basis of only $2,600,000,000 in the Occidental 
world. It is not the whole stock of metal, both in silver 
and gold, that we can now call upon. Silver has been 
demonetized in several countries in Europe, and here we 
have so thoughtlessly worded our laws that, until we alter 
them, we can only pay in gold." 

By the act of April 12, 1873, the silver coins of the United 
States were declared to be a legal tender at their nominal' 
value for any amount not exceeding five dollars in any one 
payment. Silver as a commodity fluctuates in value agree- 
ably to the laws of supply and demand. The effect of the' 
law above mentioned was to partially demonetize silver, and 
hence silver coins are now (May, 16V 6) quoted at about 3 
per cent, less th^h legal tender Treasury notes. 

There is no good end to be attained by specie resumption 
that could not be attained by simply making the greenback 
a full legal tender, as should have been done in the first 
instance. By making the greenback a full legal tender, the 
prbducts of the country would be placed upon the same 
footing with foreign commodities, and that is all that is 
proposed to be accomplished by specie resumption. The 
public would then be relieved of the onerous tax imposed 
on gold to pay duties on imports, which redounds solely to ' 
the advantage of the bullionists and bondholders of the' 
United States. If this method were adopted, no disturbance 
of the industrial or social relations Of the country ctfuM: 


possibly occur. Forced specie resumption can be accom- 
plished only through a complete revolution of all the busi- 
ness and social relations of the country. This will appear 
from a brief consideration of the steps that will necessarily 
precede resumption. The circulation of the country on the 
1st of April, 1876, was as follows: 

Legal tender Treasury notes $370,755,248 

Fractional currency 42,604,893 

National Bank notes 330,378,904 

Total $743,739,045 

The lawful money reserve of the National Banks on the 

1st day of October, 1875, was as follows: 

Legal tender Treasury notes $76,366,921 

United States certificates of deposit 48,810,000 

Due from reserve agents 85,644,964 

Redemption fund with Treasurer 16,233,193 

Specie 8,050,328 

Total $235,105,406 

It will be seen that the lawful money reserve of the 
National Banks, exclusive of specie, now amounts to over 
two-thirds of the entire greenback circulation. The banks 
have still two years and a half to gather in the remainder 
of the outstanding greenbacks — all that are not locked up 
in private hoards. To call in their own circulation is an 
easy matter. If the banks cease discounting paper for six 
months there will scarcely be a bank note left in circulation. 
That they will do so is not to be doubted. The notes of the 
banks are simply evidences of their own indebtedness, and 
it is not to be supposed that they will voluntarily add twelve 
per cent, or more to their own indebtedness when they can 
easily avoid it. Long before the first day of January, 1879, 
the banks will have possession of the entire circulation of 



the countiy, both greenbacks and bank notes, and thci 
nation will be completely stripped of a medium of exchange. 
The public will be helpless. The people will not possess 
even the poor privilege of issuing and using shinplastera and 
scrjp, because it will be impossible to raise money enough 
to pay the ten per cent, tax imposed upon all notes not issued 
by National Banks. Forced resumption, therefore, means 
something more than adding 12 per cent to the amount Qf 
every debt owed in the United States. Without a medium 
of exchange people will be unable to pay their debts at all; 
industry and trade will be completely paralysed; and b£nk- 
ruptcy, distress, starvation and riot will ensue. 


The experience of the people of Great Britain from 181ft 
to 1825, under similar circumstances, is full of instruction^ 
the people of the United States. In 1797 the Bank of Eng- 
land was obliged to suspend specie payments.* Great Britr 
am at the time was engaged in war with France. In 179Y 
la#ge sums of gold were required abroad, and the price of 
gold began to rise. In September, 1799, the standard, price 
of gold was £% 17s., Qd. per ounce, and in June, 1800, it w*fc 
£4, 5 s. per ounce. The war with France ended in 18 15*. 
During this period and for several years after the war tin* 
people of Great Britain were obliged to use an irredeemable 
paper currency for their medium of exchange. Prior to the. 
suspension of specie payments the condition of affairs u* 
Great Britain was gloomy indeed. Sir Archibald Aliaon* 
the historian, in speaking of the period immediately preced- 
ing suspension says: "Nor was the internal suffering of thlft 
ill-omened period inferior to its external disaster. It began 
with the severe commercial distress of 1793, unprecedented 

at that period in intensity and duration, and which was only 
•s*t 3»i* or Ifcgfe*{l, F*ge •* 


relieved by an extensive \o&n to the trading classes by gov- 
ernment; and it terminated in the dreadful monetary crisis 
and run upon the bank and mutiny in the fleet, in the spring 
of 1797, which brought the nation to the briuk of ruin, and 
forced upon the government the necessity of suspending 
cash payments." The British Government and people had 
been vainly trying to carry on great operations with afn 
inadequate medium of exchange. The suspension of tbe 
Bank of England led to the use of irredeemable paper 
money to an enormous amount, or, to use an expression now 
greatly ridiculed by the buliionista, " to an amount equal •(► 
the wants of trade." The result was magical. We will 
again quote from Sir Archibald Alison. He says: "The 
next eighteen years of the war, from 1797 to 1815, werey as 
all the world knows, the most glorious, and, taken a* a 
whole, the most prosperous, which Great Britain had ever 
knowiii Ushered in by a combination of circumstances tbe 
most calamitous, both with reference to external security 
and internal industry, it terminated in a blaze of glory and 
a flood of prosperity which have never, since the beginning; 
of the world, descended upon any nation. Hardly had the 
mo upon the bank shaken to its center the whole fabric of 
our commercial prosperity, and the mutinies of the Nore, 
Plymouth and off Cadiz, paralyzed the arm of our naval 
defenders, when the victories of St Vincent and Camper- 
down again restored to us the dominion of the sea; and ere 
long the thunderbolts of the Nile and Trafalgar prostrated 
the naval strength of the enemy, and the victories of Wel- 
lington first arrested, and at length broke his military 
power. Prosperity, universal and unheard of, pervaded 
every department of the empire* Our colonial possessions 
encircled the earth — the whole West India Islands had 
fallen into our hands; an empire of sixty millions of mea in 


Hindostan acknowledged our rule; Java was added to our 
eastern possessions; and the flag of France had disappeared 
from every station beyond the sea. Agriculture, commerce 
and manufactures at home had increased in an unparalleled 
ratio; the landed proprietors were in affluence; wealth to 
an unheard of extent had been created among the farmers; 
the soil daily increasing in fertility and breadth of cultivated 
land, had become almost adequate to the maintenance of a 
rapidly increasing population; our exports, imports and 
tonnage had more than doubled since the war began; and 
though distress, especially during 1810 and 1811, had at 
times been severely experienced among the manufacturing 
operatives (occasioned by Bonaparte's decrees against Brit- 
ish goods), yet, upon the whole, and in average years, their 
-condition was one of extraordinary prosperity. The revenue 
raised by taxation within the year had risen to £72,000,000 
in 1815 from £21,000,000 in 1796; the total expenditure 
from taxes and loans had reached in 1814 and 1815, the 
enormous amount of £117,000,000 each year. In the years 
1813 and 1814, being the twentieth and twenty-first of the 
wiar, Great Britain had above a million of men in arms in 
Europe and Asia, and remitted £11,000,000 yearly in subsi- 
dies to the continental powers. Yet was this prodigious 
and unheard of expenditure so far from exhausting either 
the capital or resources of the country, that the loan in 1814 
was obtained at the rate of £4, lis., Id. per cent, being a 
lower rate than that paid at the commencement of the war; 
although the annual loan at its close was above £35,000,000, 
and the population of the empire at that period was only 
eighteen millions." 

All this was accomplished in Great Britain during the 
early part of the present century by irredeemable paper 
money. The bullionists try to blunt the force of this argu- 



ment by attributing the prosperity of England daring this 
period to the vast outlays of the government, but if this was 
the cause, why did it not produce the same effect during the 
period prior to the suspension, when the government was 
making similar outlays? The simple truth is that the people 
of Great Britain possessed patriotism and faith in the sta- 
bility of their government and institutions, and when fur- 
nished with industry's most essential tool, an abundant and 
cheap medium of exchange, they were enabled to develop 
the producing forces of the nation to their utmost extent, 
with the marvelous results above given. And the logic of 
the whole matter is, that if paper money will perform such 
marvels in time of war, danger and uncertainty, it can be 
made to perform the same or greater marvels in time of 
peace, when no uncertainty need attend its use. 

When the several acts of Parliament were passed contin- 
uing Pitts' " bank restriction " (continuing the suspension of 
specie payments), one clause was always retained, and that 
was that the bank was "to resume cash payments" within a 
few months after peace should be established. Doubleday, 
in his Financial, Monetary and Statistical History of Eng- 
land, says that " it has been asserted that Pitt never meant 
this clause to be enforced, at least as far as regarded the 
fundholderR (bondholders) ; and that he intimated as much 
in Parliament on one occasion." However, it was adhered 
to. The bullionists immediately began to clamor for a 
return to specie payments. The bank of England, which 
had "bales of paper money" in circulation, was obliged to 
contract to an extent that would enable it to redeem the 
remainder in coin. This began to occasion distress amongst 
the merchants and manufacturers. In speaking of this 
period Doubleday says: "During former revulsions, such as 
that of 1810, caused by the decrees of Bonaparte against 


the admission of British goods, the bank had come promptly 
forward with loans and discounts to relieve the pressure. 
!Wow, however, the directors scarcely dared to move an ineh. 
They knew that the political economists were strong in the 
House, and that they were bent upon cash payments at all 
risks. They knew that the Jews of Change Alley would 
secretly abet the same doctrine. Against a combination of 
usurers and Jtfieorists, one set all selfishness, the other all 
erotchets, there was no defense to be made. The country 
gentlemen, who were the dunps of the economists, were led 
to believe that cash payments were necessary for both die 
interest and security of themselves. Those who had the 
power were resolved, and nothing was left to the bank bttt 
to narrow its issues, and look about for gold and silver 
wherewith to meet the storm. This was altogether a diflSr 
eult business. In the yepr 1816 alone thirty-seven country 
banks had become bankrupt. The commercial wo*ld 
required additional propping. But the government (tb* 
bank) was in the same dilemma; and to it the merchant* 
were sacrificed. Between February and April, 1816, the 
directors lessened their discounts from £23,000,000 te 
£11,000,000; and before February, 1817, to £8,000,000; and 
before August of the same year to £7,000,000; whilst up to 
nearly the same period they held of Exchequer bills, ete.^ 
£25,000,000. * * This reduction of the bank issues, and 
destruction and crippling of the country banks, had another 
and still more important effect, inasmuch as by causing the 
price of gold to fall to nearly the mint price, it encouraged 
the political economists to press forward, and at last, in 
1819, to pass an act, the most important in its consequences, 
and extraordinary in its circumstances, that ever was decided 
upon by any legislature, in any age or country. * * Tht 
Currency bill of (May) 1819 was passed at the instance ef 


a committee, amongst the members of whom were included 
afl the parliamentary dabblers in political economy of any 
name or talent, and of whom Peel was chairman. Horner, 
the chairman of the bullion committee of 1810, was dead; 
but in his stead, they had Ricardo, a rich Jew stock-jobber, 
who having made an immense fortune by this worst species 
ef gambling, had also contrived to obtain a reputation by 
the publication of some books on political economy, * * 
Backed by the authority of this rich and arrogant man, die 
economists obtained on this occasion an almost entire cont- 
mand of the House of Commons. * * The House made 
the plunge with one accord. There was hardly the sem- 
tftance of an opposition. Ricardo had the enormous folly 
to tell the House that the bill was 'not worthy of half an 
hour of even their consideration;' and assured them that the 
whole question was one of 'three per cent;' this being the 
extent of the fall of prices, which this man calculated would 
take place, after all the one and two pound notes in the 
Mhgdom were burned, and the remainder, of five pound 
motes and upwards, made * payable on demand in gold sover- 
eigns worth £3, 17s., 10£d. the ounce.' In short there was 
only one man in the Commons who really understood and 
opposed the measure, and this man was Mr. Matthias Att- 
wood, * * and Mr. Attwood was prevailed upon to quit 
tfce House that the vote might be unanimous. In the House 
of Lords, Lord Grey alone ventured to dissent from the 
measure; * * The Houses, however, for once * were all in 
one accord.' * * As a bit of legislation, this ever-memo- 
rable act is remarkably tjrief and to the point; consisting 
<*nly of thirteen not very long nor wordy clauses. It repeals, 
hi the first place, all the acts for restraining the bank from 
paying its creditors, which had been passed from 179? up 
fo that time, the repeal going into effect 'from and after thfe 


first day of May, 1823.' This was a repeal of all bank notes 
on demand for sums less than five pounds. It then provides 
for a gradual return, in the meantime, by the bank to cash 
payments; beginning with an issue of gold at four pounds 
one shilling the ounce, in 1820, and ending with the stand- 
ard mint price of £3, 17s., 10£d." 

The premium on gold during this period fluctuated as 


1814 30£ per cent. 1817 2£ per oent 

1815 18f " 1818 5 " 

1826 2£ " 1819 6£ « 

18 16, Oct to Dec. 1 " 1820 ....par. 

Although the Currency bill passed Parliament unani- 
mously, it did not fail to excite great alarm and oppositiom 
Among the industrial and business classes of the kingdom. 
The Directors of the Bank of England protested against its 
passage, declaring that * they could not venture to advise 
An unrelenting continuance of pecuniary pressure upon the 
commercial world, the consequences of which it was impos- 
sible for thorn to foresee or estimate," or countenance k 
measure in which " the whole community was so deeply 
involved, and which would possibly compromise the univer- 
sal interests of the empire in all the relations of agriculture, 
manufactures, commerce and revenue." The bankers and 
merchants of London joined in a petition against it, in whiok 
they predicted the most disastrous results. 

The contraction of the currency, which was augmented 
by the passage of the bill, soon produced the most alarming 
results. We again quote from Alison'a History of Europe. 
He says: "The effects of this extraordinary piece of legisla- 
tion were soon apparent. The industry of the nation waa 
speedily congealed, as a flowing stream is by the severity of 
an Arctic winter. The alarm became as universal and wide- 


spread as confidence and activity had recently been. The 
country bankers, who had advanced largely on the stocks 
of goods imported, refused to continue their support to their 
customers, and they were forced to bring their stocks into 
the market Prices in consequence fell rapidly; that of 
cotton, in particular, sank in three months to half its former 
level. The country bankers' association was contracted by 
no less than five millions sterling ($24,000,000); and the 
entire circulation of England fell from $235,545,000* in 1818- 
to $174,385,000 in 1820, and in the succeeding year it sank 
as low as $142,757,000. * * The effects of this sudden 
and prodigious contraction of the currency were soon appa- 
rent, and they rendered the next three years a period of 
ceaseless distress and suffering in the British Islands. The 
accommodation granted by bankers diminished so much in 
consequence of the obligation laid upon them to pay in 
specie, which was not to be got, that the paper under dis- 
count at the Bank of England, which in 1810 had been 
$115,000,000, and in 1815 not less than $103,000,000, sank 
in 1820 to $23,360,000, and in 1821 to $13,610,000. The 
effect upon prices was not less immediate or appalling. 
They declined in general, within six months, to half their 
former amount, and remained at that low level for the next 
three years. Distress was universal in the latter months of 
1819, and that distrust and discouragement were felt in all 
branches of industry which are at once the forerunner and 
cause of disaster." From Mr. Doubleday's history we also 
quote as follows: "We have already seen the fall in prices 
produced by the immense narrowing of the paper circulation. 
The distress, ruin and bankruptcy which now took place 
were universal, affecting the great interests both of land 
and trade; but especially among land owners, whose estates 
were burthened by mortgages, settlements, legacies, etc., 

•Amounts are given in dollars instead of pounds. 


the effects were most marked and out of the ordinary 
In hundreds of cases, from the tremendous reduction which 
mow took place, the estates barely sold for as much ad would 
pay off the mortgages; and hence the owners were stripped 
of all and made beggars." Before the close of the year 

1819 the distress became insufferable. Great meetings were 
held throughout England and Scotland during the summer. 
In August 60,000 people, men, women and children, assem- 
bled near Manchester. A collision occurred between *be 
people and the troops, in which a number were killed and. 
many wounded. This created intense excitement, and the 
meetings of the people held in Liverpool, York, Leeds, and 
various other cities, were attended by vast multitudes *rf 
suffering people, demanding vengeance. Serious riots 
occurred, which were only quelled by military force. Im 

1820 a conspiracy was discovered, which had for its object 
the murder of all the King's Ministers, and which was onltr 
frustrated through the cowardice of one of the conspirator 
who betrayed his associates. Military training went o» 
amongst the people, and the government was obliged in 
provide a large military force to prevent an outbreak. "On 
Sunday morning, the 2d of April," says Alison, "a treason- 
able proclamation was found placarded all over the street* 
of Glasgow, Paisley, Stirling, and the neighboring town* 
and villages, in the name of a provisional government^ 
calling on the people to desist from labor; on all manufac- 
turers to close their workshops; and on all the friends <rf 
their country to come forward and effect a revolution bf 
force, with a view to the establishment of an entire equality 
of civil rights. Strange to say, this proclamation, unsigned, 
and proceeding from an unknown authority, was wideljr 
obeyed. Work immediately ceased; the manufactories were 
closed, from the desertion of workmen; the streets were filled 


until anxious crowds eagerly expecting news from the south; 
~|he sounds of industry were no longer heard, and two hun- 
«bed thousand persons in the busiest districts of the country 
were thrown into a state of compulsory idleness by the 
mandates of an unseen and unknown power." Five thou- 
sand troops were immediately assembled at Glasgow, and 
the insurgents were overawed. Before the end of the year 
the government had increased its volunteer force to 85,000 
men. "Without doubt," says Alison, "this powerful volunteer 
force, organized especially in the manufacturing districts 
lit this period, and the decisive demonstration it afforded 
of moral and physical strength on the part of the govern- 
ment, was the chief cause through which Great Britain 
•seaped an alarming convulsion." 

Thus were the masses of Great Britain, whose valor and 
labor had carried the nation to the acme of glory and pros- 
perity, ruthlessly and wantonly sacrificed on the altar of -so 
called "honest money," only to further enrich the moneyed 
*&ss of the kingdom. But after all forced specie resump- 
tion proved a failure. Parliament was obliged to retrace its 
•tops. In 1822 an act was passed authorizing the issue of 
Hue and two pound notes for a period of ten years longer, 
Mid the one pound notes were made a legal tender every- 
where except at the bank of England. "This act," says 
jfclison, " coupled with the grant of £4,000,000 Exchequer 
Mis, which the government was authorized to issue in aid 
•f the agricultural interest, had a surprising effect in restor- 
ing confidence and raising prices; and by doing so, it 
repealed, so long as it continued, the most injurious parts of 
the act of 1819." But the ruin, suffering and misery which 
tad attended the attempt to force specie payments could mot 
fct undone, nor could the broken fortunes be restored. By 
* return to specie payments finally, the specie basis banking 


and credit system, the whole tendency of which is to con- 
centrate wealth in the hands of the few, was re-established; 
and the industrial classes, especially the agricultural class, 
have never since been able to recover from the blow then 

"Princes and lords may flourish, or may fade, — 
A breath can make them, as a breath has made: 
But a bold peasantry, their country's pride, 
When once destroyed, can never be supplied." 

In 1822 the land owners of England numbered 165,000. 
According to the census of 1861 the number was about 
30,000, and one-half of the whole kingdom is now owned 
by not more than twelve persons. 

From this mere outline of the disastrous events which 
attended specie resumption in Great Britain, revolutionizing 
the whole structure of British society, and shaking to the 
center the foundations of the government itself, some idea 
may be formed of what the American people will be obliged 
to suffer during the next few years. Great Britain the* 
possessed many advantages which are not possessed by the 
United States at the present time. Her industries were in 
full operation; the balance of trade was largely in her favor; 
she had a large supply of specie to begin with; the premium 
on gold was only about five per cent.; and, as the country 
was limited in extent and densely populated, money circula- 
ted with great rapidity. On the other hand, the industries 
of the United States are already prostrate; the balance of 
trade is against the country; the specie in the country is 
inconsiderable in amount; the premium on gold is over 
twice as high as 5 , was in England; and the immense extent 
of the country precludes any possibility of money circulating 
with rapidity. In addition to this, British thought > and 
habit had been educated under the specie basis and oredit 


system of money; whilst, in the United States, experience 
has fully demonstrated that the system is inconsistent with 
the genius of American institutions and repugnant to Amer- 
ican habits and ideas. 

There is every reason, therefore, to believe that the disas- 
ter and distress which will attend an attempt to force specie 
payments in the United States will exceed in intensity that 
which marked the experience of Great Britain an hundred 
fold. The contraction which took place just after the war 
was carried on wholly by the government. The evil conse- 
quences of this contraction were partially averted by the 
emission of over $350,000,000 of bank currency. But now 
a different kind of contraction is going on. The National 
Banking system has already enabled the banks to acquire 
possession of over two-thirds of the greenback circulation, 
and it is a question of but a short time until they will hold 
almost the entire amount. Their own notes are encumbered 
with interest, and are not subject to the natural laws of 
trade, but to the will of the banks. It will take but a short 
time, therefore, to call them all in. The organs of the banks 
are constantly repeating the statement that there is plenty 
of money in the banks, and that any one can get it who has 
anything to get it with, and the statement is echoed and 
re-echoed by all the demagogues and weak minded tools of 
the money power in the country. Properly considered, we 
submit that this fact alone confirms all the objections which 
we have urged against the system of banks of issue. Why 
is money plenty in the banks, and why is it not occupying 
the channels of trade and honestly performing the functions 
for which money is designed? For the simple reason that 
a medium of exchange consisting, even in part, of bank 
currency will not obey the natural laws of trade, because it 
is burdened with interest which robs the industry of the- 


nation of more than its average profit In ordinary timet, 
after industry had been driven to the wall and a commercial 
crash had brought about an adjustment, the banks began to 
expand their circulation, and the banks and the people would 
enter upon another era of inflation, only to end in the same 
manner. But now the specie resumption act not only pre- 
vents any such expansion, but compels both the banks and 
the people to contract in every way possible to prepare for 
the impending crash. True enough, money is plenty in the 
banks, and it will grow plentier there before the nation is a 
year older. In fact the contraction of the banks has scarcely- 
more than begun. But as failures multiply, as they are now- 
doing with startling rapidity, loans and discounts will grow 
less common, until finally the country is entirely deprived 
of a circulating medium. This can end only in the complete 
destruction of all values. It will be as difficult to pay a 
small debt as a large one, for money will be everything and 
property nothing. Taxes cannot be paid, for there will fee 
no money to pay them with. Not only will individual- 
bankruptcy be general, but the decline in the public reve- 
nues, which must follow, will render it impossible for the 
Federal 1 or State Governments to meet their obligations^ 
This is the only kind of repudiation that need ever be feapad 
in America. The people are being rapidly deprived by the 
policy of the money power, not only of the ability to sustain 
the government, but of the ability to provide for themselves 
and families. That a nation possessing the wonderful 
advantages and the skill and energy possessed by the Amer- 
ican people should be brought to even its present distressed 
condition in the pursuit of a phantom, is simply monstrous. 
And when the crisis is reached, what will have been attained? 
"Honest money?" No. Nothing but a circulating medium 
consisting of bank currency, only nominally redeemable iar 


eoin. Assuming that the government will be able to redeem* 
the greenback circulation and that the amount is paid to th* 
banks, it is not difficult to foretell the result. The banks 
will issue bank currency, redeemable in coin. Whenever a 
demand for specie arises abroad, American securities will 
be thrown upon the market, and the gold in the .country wilt 
disappear in a day. The banks will be obliged to suspend 
specie payments, precisely as the old State banks of issue 
were obliged to do, time and again, under similar circum- 
stances. Under the old State banking system the people 
Wffcre compelled to use bank currency . even when they knew 
it was a fraud and a lie, because they had nothing else to 
we. But under the National Banking arrangement the* 
setes of the banks will be taken without hesitation, not 
because they are convertible into coin, but because they are 
guaranteed by the Federal Government — based upon the 
faith and wealth of the nation. In the end, therefore, so far 
as specie circulation is concerned it will prove, as in the 
days before the war, a fraud and a delusion. The National 
Banks, however, will have accomplished their end. Thejr 
wiU have obtained absolute control over the monetary *n4 
j>pti#cal affairs of the nation. The whole affair is in fac& 
tat a grand scheme to accomplish that purpose, and il \» 
marvelous that intelligent people can be deoieved in believ* 
ing otherwise. In 17&1, when Hamilton sought to establish 
Me funding and banking scheme, the great Pitt said: u Let 
the Americans adopt their funding system and go into their 
banking institutions, and their independence will be a mere 
phantom." What Hamilton, with all his genius and great 
ability and influence was unable to accomplish in the 
infancy of the republic, a pack of venal demagogues have 
W*M nigh- accomplished nearly a century, later. People ar* 
wont to say, and apparently' seem to think that it u a* 


evidence of their good sense, " that they don't know nor care 
anything about this financial question." It is high time that 
everybody. should seek to understand this question, because 
until the National Banks are destroyed and a system of 
money is founded upon sound principles, there can be no 
enduring prosperity in the country, and the " independence 
of the people will be a mere phantom." The demoralization 
which is now going on throughout the country in conse- 
quence of the enforced idleness and poverty of millions of 
people, is a matter of serious import, and one which should 
awaken to a sense of duty and action every christian man 
and woman in the land, and especially ministers of the 
Gospel, who profess to follow Him whose tenderest care was 
ever manifested for the weak, tho lowly and the oppressed. 
There is another fact which may convey a warning to 
those who are lending themselves to the ignoble cause of 
enriching the money power at the expense of ruin, poverty 
and distress to the masses. When tho American people are 
driven to the extremity that the English and Scotch people 
were, by an attempt to force resumption, and gather in vast 
multitudes, as the English did at Peterloo and the Scotch at 
Glasgow, to demand redress, matters will assume a very 
different shape in tho United States from what they did in 
Great Britain. It is true that an organ of a notorious Wall 
street operator, the New York Tribune, has intimated that 
any such demonstrations would promptly be met with " shot 
and slaughter;" but in the United States that is more easily 
said than done. The day has not yet arrived when Ameri- 
cans oan be intimidated by such threats. As yet they "their 
duties know, but know their rights, and knowing dare 
maintain them." While the American people undoubtedly 
possess too much patriotism and intelligence to jeopardize 
the stability of their institutions, they nevertheless may 
possibly forget, in the hour of their distress, that the Lord 
hath said, "vengeance is mine." In that day the Shermans 
and McCullochs had better never have been born. 



It is a common error, inculcated by the bullionists, to 
suppose that metallic coins alone are money, and that money 
is the same thing in all parts of the world. Nothing could 
be further from the truth. Population, commerce and trade 
have long since outgrown the world's supply of the precious 
metals. Every nation builcjs up a monetary system of its 
own, and no two systems are or can be alike. The monetary 
system of a nation is an outgrowth of its civilization, pre- 
cisely as are its manners, its customs, its language and its 
government For example, Great Britain and Prance both 
use metallic coins and paper money, and yet the monetary 
systems of the two nations differ in almost every particular. 
Several centuries ago the increase in population, trade and 
manufactures and the limited supply of gold and silver ren- 
dered it impossible for the people of Great Britain to secure 
a sufficient amount of coin to form an adequate medium 
of exchange. The true nature and functions of money were 
but imperfectly understood, and no effort was made, on the 
part of the government of that kingdom, to remedy the dim. 
culty under which the people labored in effecting their 
exchanges. The people were obliged to do the best they 
could. Exchanges of property and commodities thus came 
to be effected to a great extent by means of promissory 
notes, book accounts, and other devices of the credit system. 
In the course of time the Bank of England was established. 

Soon after it was established its managers conceived the 



Idea of issuing bank notes, to be exchanged for the notes of 
individuals. Merchants and others gladly availed them- 
selves of an opportunity to substitute the notes of a respon- 
sible and widely known institution for the notes of individ- 
uals, which could only circulate in a limited sphere. Bank 
notes were found to be capable of greatly facilitating the 
operations of trade, and became the chief medium of 
exchange of the nation. Bank notes, it will be perceived,, 
are purely an offshoot or development of the credit systero*. 
invented to remedy the want of an adequate mediuni of 
exchange. In this manner a monetary system of a peculiar* 
character has been developed in Great Britain, which hash 
exercised a powerful influence upon the destinies of th#» 
people of that kingdom and also upon the rest of the worlds 
The monetary system thus developed in Great Britain^ 
although based on specie, is made up almost wholly of 
credit. The statement of Sir John Lubbock, given on pager 
48, shows that of £19,000,000, paid into his bank in a few 
days, only one-half of one per cent, consisted of coin- 
Every dollar in coin in Great Britain thus becomes the bapi* 
of an immense superstructure of credit Gold coins are thfr 
legal tender money of the country, silver being a tender 
only for small sums. As the exchanges of the country/ 
are earned on with a medium of exchange only a small per- 
centage of which is coin, whenever a stringency occurs^ or 
a want of confidence prevails, which inevitably happens a* 
soon as the credit of the nation becomes fully inflated* 
everybody seeks to obtain possession of this small per- 
centage of the circulating medium, which alone is a tender 
in payment of debts. Coin consequently rises in value and. 
is no longer a proper measure of other values. In thift 
respect at least its functions as money are totally perverted. 
Money thus instituted is given a tremendous power ove* 


property and labor, and the whole tendency of the system is 
to make the rich richer and the poor poorer. The system, 
however, is in accord with the views held by the aristocratic 
or governing class of Great Britain, and finds its champions 
in a school of political economists, who profess to believe, 
and strive to inculcate, the doctrine that it is natural and 
proper that poverty and want and disease and misery should 
"be next door neighbors of wealth and unbounded prosperity., 
It is due chiefly to this system of money that such great 
extremes of wealth and poverty are to be found in Great 

France, like Great Britain, uses both coin and paper 
mone\, but money in France is instituted upon entirely 
different principles. The policy of the French Government 
is to render money abundant and cheap, in order that the 
exchanges of the nation may be effected with the least cost 
possible, and that the productive ability of the people may 
Yte developed to the utmost extent. The men who moulded 
thei French system were wise enough to know that labor is 
the time source of wealth, and that the surest way to render 
die government powerful was to enable the masses to 
become prosperous. This was not accomplished without a 
great struggle. Colwell, in his work on The Ways and 
Means of Payment, says: "The system of public finance in 
France, once so cumbrous and awkward, so expensive and 
otherwise disadvantageous to the nation, has, during the past 
half century,* under the able direction of Count Mollien, 
the Marquis D'Audriffet and other eminent men, undergone 
such radical changes as have completely modified both its 
principles and its mode of operation. These reforms were 
resisted, in every stage and with every weapon, by the 
parties (the money power) interested in maintaining old 

♦ThU was written prior to 1880, 


abuses. The persevering efforts of honest and intelligent 
men for thirty or forty years overcame all opposition, and 
France now enjoys a financial system, in not a few respects, 
superior to any other nation." The people of France have 
the cash system and pay as they go. The circulation of the 
country consists of about $1,200,000,000 in specie and about 
$500,000,000 of irredeemable legal tender paper money, 
issued by the Bank of France. The London Standard of 
April 14, 1876, in commenting on the remarkable condition 
of the French finances, says: 

"The Bank of France at the present time occupies in the 
financial world a position more remarkable than has ever 
been held by such an establishment Its notes enjoy a 
forced currency and are a legal tender in all business trans- 
actions, yet those notes suffer no depreciation. They pass 
from hand to hand for precisely the same value as gold. A 
sufficient explanation of this fact may, perhaps, be found by 
some persons in the circumstance that the bank has accumu- 
lated in its ooffers at this moment the greatest quantity of 
the precious metals that has ever yet been possessed by a 
single establishment That, however, does not really account 
for the undiminished credit of the bank. For even in the 
agony of the last war, when the veteran armies of the empire 
were prisoners in Germany, when Paris was closely invested, 
and one-third of the departments were occupied by the 
invader, the bank's notes were at no greater discount than 
two or three per cent., and almost immediately rose to par. 
It is, then, the admirable management of the bank, not the 
satisfactory nature of its reserve, which gives to it the confr- 
dence it commands. It adds to the peculiarity of the posi- 
tion that, although the bank possesses a stock of gold and 
silver out of all proportion greater than is held by any other 
bank in the world, it does not propose immediately to 


resume specie payments. And what is more remarkable 
still, nobody demands that it shall do so." 

A further examination of the monetary systems of other 
nations would disclose similar peculiarities and differences; 
in some gold is the only tender, in others silver, and in 
others gold, silver and paper. In Austria, for example, 
silver pieces of the denomination of one and one and a half 
florins are a legal tender to any amount. Gold is also 
coined into pieces of the denomination of four and eight 
florins (about $2 and $4), but as gold is not a tender, it 
is regarded as merchandise and fluctuates in value like 
other merchandise. The Austrian system is modeled after 
the British system, silver forming the basis instead of gold, 
and it has proved there as elsewhere a perpetual source of 

From these facts it is manifest that a people should be 
far more concerned about the manner in which their mone- 
tary system is instituted than about the material of which 
Aeir money is made. The chief function of money is to 
exchange property and commodities, and it should be insti- 
tuted in such a manner as to enable this to be done econom- 
ically and equitably, so that all classes may be duly rewarded 
in the distribution of the products of labor, according to 
their deserts. 

People strive to accumulate wealth, and wealth, in its 
ordinary signification, consists of property and money. As 
money, by virtue of its legal properties, is an equivalent for 
all kinds of property, its possession is eagerly sought, and 
hence it seems that people are seeking solely for money, 
which is not the fact. Money is simply the means to attain 
the end, which is dominion over property. Real value 
belongs only to property or products, and money is the legal 
medium by which it is represented, measured and exchanged. 


and hence money, properly considered, is simply a tool oi 

As has already been explained, the population, commerce 
and trade of the world has long since outgrown the supply 
of the precious metals available for the purposes of a medi- 
um of exchange. Other forms of money are in use in all 
civilized nations. The larger operations of trade, both for- 
eign and domestic, are carried on almost wholly by means 
of paper devices or substitutes for money, which represent 
and dre based on the value of the commodities exchanged. 
Bills of exchange constitute the real " money of the world." 
The trade between different sections of the country, like the 
foreign trade, is carried on almost entirely by means of bills 
of exchange, checks, drafts, etc., and no one will say that it is 
not more economically and safely done than if it was carried 
qxl by means of gold and silver. The volume and amount 
of the bills of exchange, etc., used are limited only by th« 
exchanges to be made. If any one were to suggest that biUa 
of exchange, drafts, etc., whether foreign or domestic, should 
he limited in volume and amount by law, he would probably 
be denounced as a fool, and yet it is just as absurd and far 
more unjust to limit the volume and amount of the legal 
tender money to an amount manifestly inadequate to effeot 
the exchanges of the nation. • 

Money, by reason of its legal properties, under any cir- 
cumstances, has sufficient power over property to enable it 
to perform all the essential functions of money, namely, to 
exchange and accumulate value; but to limit it in amount, 
as by selecting a rare and expensive material like gold, or 
by arbitrarily declaring by law, as in the case of legal 
tender Treasury notes, that it shall not exceed a certain suai| 
Without regard to population, extent of country, or exchange* 
to be effected, is to invest money with an extraordinaqr 


power over property, labor and trade, as unsound in princi- 
ple as it has proved ruinous in practice. 


The issue presented to the American people, then, in the 
present crisis, is not between specie and paper money, but 
l>etween two systems of money, both involving the use of 
paper currency. No more important question could possibly 
arise, for upon its proper solution depends not only the 
present prosperity of the nation, but the welfare of the peo- 
ple for generations to come. "Monetary laws," says Kel- 
logg, "are the most important that are enacted, for by these 
laws money is made the tender for debts and the medium 
of exchange for products. All individuals are compelled to 
found their contracts for the necessaries of life upon the 
standard fixed by law. However good the intention of the 
parties, their contracts will partake of the evil of the mone- 
tary laws upon which they are founded, and every law that 
goes to support the fulfillment of the contracts will partake 
of the same evil. * * The laws make money the founda- 
tion for all business contracts. The value of this foundation 
is unjust and continually varying, so that parties in fulfilling 
their contracts are compelled to give either more or less 
than a just equivalent for their purchases. The results of 
all contracts are as varying and unjust as their foundation. 
The continual fluctuations in the value of money makes a 
sort of gambling system of all trade." 

The distinguishing features of the two systems of money, 
The Specie Basis or Bank Currency System and The Legal 
Tender Paper Money System, which are now presented to 
the American people for their adoption or rejection, have 
been duly explained in the foregoing pages. It only 
remains now to bring them together, in order that the 


advantages and disadvantages of each may be fully dis- 


The specie basis or bank currency system originated with 
the Bank of England;* it was introduced into the United 
States about the time of the Revolution, and has exercised 
a powerful influence upon the business and social relations 
of the people of the United States since that time. 

The fact that banks of issue have existed in the United 
States for over three-quarters of a century has led many to 
suppose that issuing and lending bank notes constitute the 
chief business of banks. Issuing or lending bank notes, on 
the contrary, is a mere incident of the business of banking. 
The great function of banking is the adjustment of pay- 
ments, growing out of the exchange of property and com- 
modities, by means of devices of the credit system, such as 
bills of exchange, etc. Banking, as we have explained,! is 
an agency of trade, second in importance only to money 
itself. For many purposes of trade the means of payment 
afforded by banks are preferable to the use of cash, as where 
they obviate the necessity of transferring or retransferring 
money between individuals, localities and nations having 
mutual dealings. The great error of the specie basis and 
bank currency system of banking consists in this, that the 
banks, not satisfied with furnishing the means of payment 
best adapted for carrying on the larger operations of trade, 
seek to compel the public to use the same means of payment 
(devices of the credit system) in all the operations of trade, 
although for many purposes cash is preferable to credit. 
No dividing line can be established between the use of cash 
and credit, and it is manifestly but the part of wisdom to 
have money so instituted that commerce and trade can avail 

•See page 89. tSee page 76. 


themselves of either cash or credit in such proportions as 
maybe most advantageous. If the circulation consists of 
bank currency this cannot be done, because bank currency 
is credit and not cash. "The banks of the United States,^ 
says Colwell, one of the most conscientious as well as pro- 
found writers upon the subject of money, "are, properly 
speaking, dealers in credit So far as their capital is paid 
up in gold or silver, it is reserved as a security for their 
circulation. It is a rare thing that a bank lends gold or 
silver. Their business consists mainly in purchasing com- 
mercial paper — that is, the evidences of debt taken by men 
of business in the ordinaiy course of their affairs; in paying 
for that paper with bank notes, or with credits granted upon 
their books; in receiving upon deposit their own notes and 
claims or transfers upon other banks; rn allowing a constant 
transfer of deposits, in the way of payment, among their 
customers and those with whom they deal. The banks> 
then, are not lenders of money, though compelled to pay 
their obligations in money. They are founded on the idea 
that an association of men, with a paid up capital, and a 
corporate existence, is entitled to a higher credit than indi- 
viduals, and that the latter might find it greatly for their 
advantage to avail themselves in their business transactions 
of this superior credit." It is undoubtedly highly advanta- 
geous to individuals to be enabled to avail themselves of 
this superior credit in many of the operations of trade, but 
it is equally important that they should be enabled also to 
avail themselves of the use of cash in other operations. 
Under the bank currency system cash does not circulate in 
the channels of trade, but bank notes, and these are contin- 
ually being returned to the banks in payment of debts. 

The following extracts from The Ways and Means of 
Payment, to which we are already so much indebted, will 



convey a clearer idea of the leading principles, whioh 
underlie the specie basis system, than we could otherwise 
hope to give. It should be remembered that Mr. Colwell's 
work was written prior to 1860: 

"We have seen," says Col well, "that the credit system 
rests upon the fact, that the business of purchasing and 
selling commodities is separated from the business of pay- 
ments; and upon the further fact, that the commodities 
which men sell are made to pay for those they purchase 
So far as credits and payments are concerned it is the main 
object of every man to apply his credits to pay his debts; to 
employ what is due to him by others in discharging that 
which he owes to others. The main agency in this is the 
banks. It is well known that all the large transactions of 
business are made upon the credit of the parties concerned 
in them; that the great staples of the country, as well as 
foreign goods in large quantities, are bought and sold upoa 
individual credit. The market value involved in every 
transaction is expressed in money of account, and appears 
on the face of the bills of exchange and promissory notes 
which the purchaser gives, and the seller takes, as evidence 
of the debt incurred and credit given in each case. These 
evidences of debt and credit, which represent, in various 
shapes, the market value of the commodities, foreign and 
and domestic, as they move in the channels, of trade are the 
very articles in which it is the object and proper business of 
the banks to deal. The parties to these evidences of debt, 
or this commercial paper, having delivered and received the 
commodities upon which the credits and indebtedness are 
alike founded, have the remaining duty of payment to 
fulfill." * * 

"Men extensively engaged in commercial and industrial 
pursuits are, by the very nature of their business, both buyers 


and sellers — both debtors and creditors. It is important to 
pay their debts, and realize their credits, with the least 
trouble, expense and waste of time possible. When any two 
of them have mutual accounts against each other on theii 
books, they compare and balance thein: of course debts so 
paid, and credits so realized, are as satisfactorily paid and 
realized as if gold had passed on each transaction. So each 
man of business indebted upon promissory notes and bills 
of exchange, and holding such paper of others for debts 
due to him, is only desirous of applying his credits to his 
debts. He never thinks of looking for gold or silver to 
effect a discharge of his debts, and as little does he think of 
exacting such payment from those who are indebted to 
him." * * 

"The banks of the United States are the chief agencies 
in this mode of payment They offer the means and facili- 
ties of payment which the parties to this business paper 
require. They receive this paper, having some months to 
run to maturity, and deducting interest for the time, give 
the parties bank notes, or a credit on their books for the 
proceeds. This is not turning individual notes into money, 
it is simply turning them into promissory notes of the bank, 
or deposits; these being of higher credit, and fitted, from 
Ihe manner in which they are issued, to be used as a cur- 
jency or a medium of payment. The real basis of the 
individual notes discounted by the bank is the commodities 
which the person giving the notes received. These persons 
contracted debts to the several amounts of their notes, and 
Against these debts they hold the purchased commodities. 
They offer the goods thus purchased to the public, and 
expect, from their sale, to realize the means of paying the 
debts. The discounted paper, therefore, exhibits on its face 
the true market value of the commodities purchased by it; 


and the bank notes, or bank credits, given for this individual 
paper have the same basis, with the added guarantee of the 
bank. All bank notes and bank credits issued upon real 
business paper are virtually issued for commodities actually 
moving in the regular channels of trade. The purchasers 
of these commodities expect to realize enough, by their sale, 
not only to pay for them, but a profit beside. 

"It is this process which is continually absorbing 
bank notes and returning them to the banks. The 
sellers of goods receive the paper of the purchasers, and 
dispose of it to the bank, taking therefor bank notes and 
bank credits, the latter of which they employ in paying their 
debts, and the former pass into circulation in the retail 
business, and in this way soon reach the hands of the 
debtors of the banks, to whom they are always as valuable 
as the equivalent, or same nominal amount of gold or silver, 
and even more desirable, because they pay debts to the 
bank equally well, and with less trouble, expense and haz- 
ard." * * 

"If the banks in any community have discounted notes to 
the amount of a million, averaging sixty days to maturity, 
granting credits therefor to the amount of $990,000, they 
will promptly give up any or all the notes going to make 
up the million, for a return of their credits to the amount. 
The banks give nothing for the notes discounted but credits 
on their books: what they gave for the notes they are 
willing to receive in kind for them. The profits of the 
bank, being the interest, for which they issued no credits, 
must of course be paid when the notes are retired. The 
main business of the banks consists, then, in purchasing 
commercial securities and evidences of debt, paying for 
them with their own notes and bank credits, and deducting 
ihe interest for their profit In doing this, they not only 


furnish a medium of payment in which these commercial 
securities can be discharged, but a currency which may 
be employed in the interval, before it is applied to the 
extinction of these debts. What chiefly makes this currency 
available and effective is, that there is an active and urgent 
demand for it, to the whol6 amount due to the banks; that 
is, for more than all the banks have issued. This demand 
is active, urgent, daily, unremitting: the notes in bank are 
maturing daily, and the demand, therefore, never flags; 
every day has its payments, which are to be effected with 
money, or the issues of the banks. The latter, in any com- 
munity where there are banks of circulation, being the chief 
medium of payment, is the medium most in demand. 

"We have shown that, in all cases where the notes dis- 
counted by the banks were given by the makers of them for 
•commodities of daily use and consumption, these commodi- 
ties are immediately offered to the public for bank notes, or 
checks on bank deposits, as the proper fund with which to 
pay the discounted notes. The commodities, by their sale, 
give origin to promissory notes; the promissory notes give 
rise to the bank notes and credits; these become, in their 
turn, a medium with which to purchase the commodities; and 
the bank notes and bank credits coming thus, by circulation, 
into the hands of the debtors to the banks, are returned to* 
the banks in payment of the discounted notes." * * 

"In cases where banks discount paper not given for prop- 
erty transferred at the time, it is, or should be, on well 
grounded confidence that the maker of the paper has the 
power or means of redeeming from the hands of the publio 
an equal amount of the issues of the bank. The banks 
being large holders of individual paper, either discounted 
or deposited with them for collection, they are of course 
constantly looked to for the means of payment; and a credit 


on the books of a bank, granted by the bank, or derived 
from another quarter, being all that is required, it is earnestly 
sought for that purpose. Where there are many banks, and 
large transactions in business and upon credit, the movement 
of these payments in banks, and the consequent movement 
of bank credits or deposits, become far too complicated to 
be followed up by any process of analysis. One great fea- 
ture, however, must ever be prominent, and that the most 
effective of all in sustaining the present banking system; 
that is, that every debtor of a bank is an active agent in 
purchasing and returning to the bank its notes and credit*; 
that the issues of the banks, whether notes or credits on 
their books, are more available, convenient and economical 
for these debtors, than the legal currency of coins. They 
are more abundant, more easily obtained, and equally 
effective. It is this which gives to bank notes and bank 
credits their efficiency and rapidity of movement. Thir 
amount of the circulation of the New York banks averaged 
over $8,000,000 in 1857, and the deposits averaged over 
$87,000,000. These constitute the medium in which thfe 
payments of the City of New York are chiefly made. With, 
these, there is a daily payment to be made of from $30,000^ 
000 to $50,000,000, and they are quite capable of making- 
that amount of payments each day, for both notes and 
deposits may be paid many times during the day. It is very 
safe to assume that over $30,000,000 of city bank notes and 
deposits are paid each business day in New York. Thera 
is a demand, then, upon these notes and deposits in every 
week, for payments, to the amount of $200,000,000, and in 
every month for $800,000,000. This demand daily, weekly, 
monthly, constantly pressing upon a fund of bank notes and 
deposits, which may at no time exceed $100,000,000, i* 
certainly active and pressing enough to keep up the vi 


ef a fund so much used, and so indispensable to the men 
•Who have $200,000,000 to pay every week. 

"That these sums 'are far within the actual daily payments 
of New York is apparent from the operations of the Clearing- 
house. The amount cleared daily, in 1857, was over $20-, 
000,000, and these clearings are but the balances on the 
transactions between the banks. A vast sum of payments 
is made every day in the business of such a city as New 
York, which is in no way embraced in the transactions of 
the Clearing-house. If we assume that the whole of the 
payments effected yearly through the agency of banks in 
the United States, is only ten times greater than the amount 
paid yearly in New York, we shall have an aggregate 400 
times greater than the amount of the precious metals in the 
country; 500 times the amount of the bank note circulation 
of the United States; 400 times the amount of bank deposits; 
and 30 times the annual value of the whole productive 
industry of the country." * * 

"la the great movements of industry and trade, goods 
ftftd services pay for goods and services; the promissory 
notes, bank notes, bank credits, or other currency, Nvhich 
intervene, are devices of adjustment, and not the very pay- 
ment ultimately aimed at. Men give what they have to 
Spare, to obtain what they desire. If they do not, in the 
first instance, sell for money, and with that purchase what 
they want, they take a security or evidence of debt; they 
make their purchases upon their individual credit, and give 
evidences of debt. The debt and credit extinguish each 
other in the banks, and the parties have, in substance, 
exchanged goods; all the rest is merely keeping and bal- 
ancing accounts between them. These securities are issued, 
in this country, to an amount not less than $1,000,000,000 
every three months, in which period this amount continually 


runs off and is renewed, making $4,000,000,000 in the year. 
Of this $1,000,000,000 of securities, the banks become the 
owners and collectors; and for half this amount they are 
under a constant engagement to pay money on demand. 
To meet this engagement, the banks hold $60,000,000 
against $500,000,000, or twelve per cent, of the amount. 
Of course, absolute convertibility of all this fund of securi- 
ties into specie, on demand, is an impossibility. If all the 
gold and silver in the country, estimated at $250,000,000, 
were in the banks, it would be an impossibility. It must, 
therefore, continue to be impossible; and hence arises one 
of the gravest difficulties connected with banks of circula- 

"If bank notes, like checks upon banks, were confined in 
their use and circulation to those at whose special instance 
they are issued, and whose debts are to be adjusted by 
them, there would be less occasion for any public interven- 
tion or concert. For the public have little interest, whether 
men thus mutually indebted discharged their debts by bal- 
ancing accounts, by bank notes, or by checks on banks. 
But the experience of a century and a half has shown that, 
where bank notes are offered as a currency, they are freely 
received, and soon become the chief medium of exchange. 
It is almost invariably true that, wherever bank notes are 
offered as a currency, with even the slightest pretensions to 
regularity and security, they are accepted, and pass rapidly 
into general circulation. This facility of converting bank 
paper into. a currency is a strong temptation to resort to it, 
and accounts in part for the multiplication of banks of 
circulation in this country and elsewhere; but it has given 
rise, also, to that ceaseless jealousy with which this system 
of banking has been watched. There is, perhaps, more 
ground for this jealousy than many friends of the system 


have been willing to acknowledge. If the circulation of 
bank notes had been confined to the payment of the debts 
in which they originate, no more mischief could ensue than 
now arises from the employment of checks upon banks, 
which the parties using them are interested to keep within 
legitimate and safe bounds. But as bank notes, wherever 
offered, secure a wide circulation, it is not enough to say, 
let people take them at their risk, as they take them at their 
discretion." * * 

"We have said, and the figures we have adduced show, 
that convertibility of the notes and deposits of our banks is 
impossible, even when the banks are in the best condition. 
And that this must continue to be the case, constituted as 
the banks of the United States are, is as certain. The main 
feature of the business of these banks is the discount of 
notes maturing at a future time: we have previously assumed 
that the average time to run, of the paper thus discounted, 
is ninety days, or one-fourth of a year. They issue to the 
parties at whose instance these discounts are made, their 
notes payable on demand, or give them credit on their books 
for the proceeds, payable in like manner on demand. The 
deposits of the banks are made up, almost altogether, from 
the notes thus issued, and the credits thus granted. The 
circulation and deposits of 1856 amounted to $445,000,000, 
for which the banks, by this mode of doing business, became 
liable on demand; that is, they received from their custo- 
mers claims on the public maturing in three months, and 
they become liable to pay a certain amount on demand; in 
the year 1856, for instance, in every three months, $445,000-, 
000, and in 1857, in every like period, $500,000,000. The 
paper discounted by the banks not being payable on demand 
would only be paid, and could only be demanded as it 
matured from day to day; whether the sums thus paid" into 


the banks were eight or ten millions daily, it was all the 
banks could exact, and if the notes had not been discounted, 
the amount required to pay them would have been the same. 
But the banks became liable to the payment of from $445,- 
000,000 to $500,000,000 in any one day in 1856 and 1857 — 
a position, stripped of the mists and prejudice which con- 
stantly surround it, which should be called, as it really is, 
stupendously absurd; and, in times of commercial revulsion, 
not less dangerous than absurd." * * 

" Banks of circulation, however, here and elsewhere, are 
and continue to be placed under stringent legal obligations 
to pay their liabilities in coins. If any law could compel 
them to do this, and still leave them power sufficient to 
carry on the business of banking with the same advantage 
to their customers and the public as at present, the currency 
they would furnish would indeed be the best attainable for 
circulation. For a paper currency of sufficient amount, 
absolutely and at all times convertible, would combine 
almost every conceivable advantage. The obstacle is, that 
such a convertibility is impossible; no legislation can accom- 
plish it; the omnipotence of the British Parliament could 
not achieve it. Even the unusual provision in the constitu- 
tion of the State of New York, which denies the power to 
the Legislature of legalizing a suspension of specie payments, 
availed not in 1857, during the fearful panic of the hundred 
days. This precaution about the notes did not extend to 
the deposits. The banks suspended upon their deposits, 
which were ten times the amount of their notes. They have 
since resumed, and have now $31,000,000 of specie to 
$90,000,000 of notes and deposits. With this enormous and 
unusual accumulation of gold, payment on demand rests 
only on the forbearance of the people. The depositors 
could bring the banks to a state of suspension in two hours. 


TJpon this state of facts, the common phrase that our bank 
circulation is based on gold and silver is absolutely untrue. 
If our paper currency had no other basis than this very 
uncertain, insecure, and ultimately impossible convertibility, 
it could not be upheld for a week, nor even a day. The 
real basis of our paper currency, that which does sustain it 
through extraordinary emergencies, is the individual prom- 
issory notes, and other evidences of debt, in exchange for 
which it is issued. These must all be paid, or the debtors 
must fail or suspend. The business men of the United 
States owed the banks, in 1856, the sum of $684,000,000; 
and the banks were indebted, for their circulation and 
deposits, $445,000,000. If we suppose that these debtors to 
the banks were 100,000 in number, owing an average of 
$6,840 each, all this mass of business men would be active 
agents in redeeming the issues of the banks, of which the 
average burden of each would be $4,450. The products of 
the industry of a country being sold, individual paper being 
given therefor, and the issues of the bank being given for 
that individual paper, it is evident not only that the issues 
are based upon that paper, but it is equally evident that the 
commodities for which the individuals issued their paper 
.have come into their hands, that they have these commodi- 
ties to offer to the public for the notes in circulation, and 
for checks on the banks, with which to pay their debts. The 
real strength of the banks is in this, that their business is 
founded on the trade and industry of the country; and all 
the business men, with the commodities of daily consump- 
tion in their hands, are under the strongest inducements to 
offer these commodities for the notes and deposits of the 

"It must not, then, we repeat, be supposed that the basis 
of our paper currency is specie; the fact is, and must be, 


otherwise; that id no foundation to be relied upon, which 
must go with the first flood. No superstructure like our 
banking system should be reared upon a quicksand. We 
do not urge this as an argument against convertibility on 
demand, in the aspect of a check upon the banks. It may 
be necessary or expedient, but cannot be so on the grouhd 
of its being the basis, or adequate security, of bank issues 
We should not make the concession even by implication, 
that $50,000,000 or $60,000,000 of gold and silver can be 
any proper basis for issues or liabilities of the banks to the 
amount of $445,000,000 to $500,000,000: it is a mere delu- 
sion, to regard the former amounts as sufficient to sustain » 
-demand for the latter." * * 

" We object, then, to a phrase so likely to mislead, as that 
of calling gold or silverHhe basis of paper currency, under 
the present constitution of our banks. The obligation to 
pay on demand can be nothing more than a check on the- 
abuse of banking, or a security to the public, and as such 
only should it be regarded and discussed. If it be indis- 
pensable, it is upon the ground that no other adequate 
security is attainable. We do not believe this, and regard 
this attempt to place the credit system on the back of our 
coinage system, as partaking of that caution and wisdom 
which would place a locomotive, for its best service, upon a 
One-horse cart." 


Under the specie basis system the money of the country 
is locked up in bank vaults as the basis of bank currency, 
and the business of the country is necessarily carried on with 
credit and currency. The amount of credit and currency 
is limited, not by the amount of specie held by the banks, 
but by the amount of property and commodities moving 


in the channels of trade. The cost of such a medium of 
exchange is enormous. The amount of the loans and dis- 
counts of the banks during the year 1875 amounted, on an 
average, to nearly $1,000,000,000, the interest on which at 
10 per cent, is $100,000,000.* The loans and discounts 
made outside of the banks doubtless exceed the loans and 
discounts of the banks, but assuming that they are the same 
j($ 1,000,000,000), and that the rate of interest averages 15 per 
cent, for the year, it would amount to $150,000,000, or iu all 
4250,000,000 paid yearly in the way of interest 

But there is another method of arriving at an approximate 
cost of the system, which makes the amount much larger. 
The clearings of the banks of New York city average 
about $20,000,000 daily. Estimating the payments of the 
city of New York at $40,000,000 daily, and the payments 
of the whole country at five times that amount, or $200,000,- 
000 daily, will give $60,000,000,000 for the year. If this 
vast sum of payments costs the payers on an average 60 
days' interest, or say one per cent, on the whole amount, it 
will make the sum paid yearly under the credit system 
$600,000,000.. This vast sum is paid by the industries of 
the country. With a medium of exchange occupying the 
channels of trade, unencumbered by interest, such as specie 
or legal tender Treasury notes, the greater portion of this 
enormous sum would be saved to the producing classes of 
the nation. The interest paid for a medimm of exchange 
furnished by the banks and for the use of credit rendered 
necessary by the bank currency system, is a burden upon 
production and trade, that can only be removed by the 
extinction of banks of issue and the substitution of legal 
tender Treasury notes for bank currency. 

*&ee Page 263. 



When the business affairs of the country are in active 
operation, the whole amount of credit and currency available 
for the purposes of trade is in constant demand. As trade 
increases the demand for credit and currency increases, 
until it becomes inflated to a dangerous extent, or a demand 
for specie may arise abroad. In either event the banks are 
obliged to provide for their own safety, and the withdrawal 
from business men of the required amount of currency and 
credit produces a stringency, which inevitably leads to disas- 
ter. Tfce manner in which this happens is thus explained 
by Colwell: 

" It is not difficult to see what abundant food for panic there 
is in such a condition of things. Persons in the United States 
have claims to the amount of $400,000,000 on the banks, 
payable on demand; these claimants know that the banks 
cannot pay in specie the fifth part of them, and often not 
the tenth part. And although the specie is not what they 
need, or would ever have asked, yet they know that the 
banks may stop payment in an hour; that they will then be 
branded as bankrupt; and that they may thereupon be sub- 
jected to injurious and damaging legal proceedings: panic 
becomes, therefore, inevitable. Men in such circumstances 
feel themselves to be involved in a widespread, complicated 
calamity. They fear the resuR, not only for the amount of 
their present deposits, and the bank notes they hold, but 
they tremble for other debts due to them, and are in equal 
dread about what they owe. They know that if this 
machinery of the credit system is stopped, or seriously 
disturbed, debts cannot be paid. The banks, under the 
influence of a panic, knowing that they can neither trust one 
another, nor the unreasoning public, for an hour, adopt what 
seems to them the only safe couroe\ \Xi«Y w&^fcVxL^T * 880 ^ 


all their issues as fast as current payments return them, 
without, however, as usual, keeping up the currency by 
fresh discounts. If the payments at the banks amount in 
the United States, for each day, to $300,000,000, the with- 
drawal of the usual facilities at the banks by contraction, to 
the extent of even one-half , would rapidly absorb the stock 
of bank notes and deposits applicable to current payments, 
and of course make these payments daily more difficult, and 
finally, to a large extent, impossible. High interest, such 
as eighteen, twenty-four or thirty-six per cent, per annum, 
supervenes in this hour of trial to check still further the 
circulation of that portion of the bank notes and deposits 
not absorbed by the banks." * * 

"The contraction in New York, in the panic of 1857, is a 
specimen of what the banks are constrained to do, to save 
themselves. They can only protect their coffers by refusing 
to issue the usual supply of currency. The diminution of 
loans and deposits in the banks of New York stood thus in 
August and October, 1857: 

Loans. Deposits* 

15th of August $121,241,472 $92,356,328 

19th of September 108,777,421 75,772,774 

17th of October 97,245,826 52,894,623 

" This exhibits a reduction of discounts, in one month, of 
$13,000,000, and the succeeding month of $11,000,000; that 
is, $24,000,000 in sixty days: in one month deposits ran 
down, under this operation, $17,000,000; in the succeeding 
month, $23,000,000; making, in the two months, a reduction 
in the chief medium of payment of $40,000,000. The 
deposits were thus reduced nearly one-half. It cannot be 
surprising that, under such a process of contraction, interest 
went up to between fifteen and thirty-six per cent., and 
exchange down to nine or ten per cent, below par. What 
the banks did in New York ^waa don^m * ^greatest ^Nkrs* 


degree, in other cities; bankruptcy, ruin a,nd d^^trtictiiw 
followed. It is estimated that from five to six thouswwi 
failures occurred, involving an indebtedness of from $28Q^ 
000,000 to $300,000,000, with a loss to creditors of more 
tfyan $150,000,000. But this loss bears no comparison yritfa 
that arising from the depreciation of securities, and from 
the fall in price of real and personal property, which* jud^- 
$ng from the results of estimates carefully made, cannot b§ 
less than $500,000,000, and may not improbably be twi,ce 
that sum. The loss sustained by the men who labor for 
thejr living is even more severe in its consequences, if UQt 
e<jual yi pecuniary amount. A million of men idle for 
six months involves a loss to the country of $150,000,0QQ, 
besides the loss upon the machinery, shops, tools and facto- 
ries, which stand idle when the workmen are unemployed, 

"The late panic has inflicted, in all its bearings and rami- 
fications, a loss upon the country which may be variously 
estimated from $500,000,000 to $1,000,000,000. No douttf 
the ill effects of the panic were much enhanced by the pre- 
vious abuse of credit, and that a considerable portion of this 
devastation should be set down to that account. With 
every allowance in that respect, we shall have a vast sum of 
loss to charge to the panic; and whether this sum be $400,- 
000,000, or $800,000,000, matters not to our view. The losa 
was, to great extent, unnecessary, cruel, terrible — a loss, 
which has carried privation, distress and ruin to a million 
of homes. For a time, at least, not yet passed, it reduced 
hundreds of thousands of the best people to a state of entire* 
dependence, if not beggaiy. 

"What was the occasion of these dire calamities? The 
banks of the United States had a reserve of specie for sev- 
eral years previous to 1857, and during the first half of tjtisfc 
year, amounting to somewhat over $50,000,000; and of this^ 



the banks in the city of New York held a little more than 
fine-fifth. To save this amount of specie, the banks con- 
tracted the currency one-half, denied the usual facilities 
upon their books, put up the rate of interest from twelve to 
thirty-six per cent., put down exchange upon England to 
nine or ten per cent, below par, reduced the revenue from 
euatoms to less than half the usual amount, drew a surplus 
of $20,000,000 of gold out of the public treasury, and drove 
the government to an issue of paper promises to pay its 
fSBrrent expenses, deprived hundreds of thousands, perhaps 
millions, of their customary employment, caused some five 
©r six thousand failures among men of business, and finally 
inflicted a loss on the country, in the depreciation of securi- 
ties, in the reduction of prices and by insolvency, of several 
hundred millions. — Not to save this sum of fifty millions 
from being lost, sunk in the ocean, or thrown away, were ail 
these evils encountered, but merely to prevent it from pass- 
ing into circulation among the people, or at the worst, to 
prevent it from being exported in payment of debts due in 
foreign countries. Nine-tenths of the debts of the country 
are paid, as we have seen, by the agency of discounts and 
deposits, with some aid from the circulation of the banks; 
but the banks have been placed under such heavy penalties 
to pay all their liabilities in specie on demand, that when 
they are threatened with a panic, a commercial revulsion, or 
a heavy export of specie to foreign countries, they are com- 
pelled, like Sampson in the temple of the Philistines, to pull 
down the whole fabric of credit, public and private, about 
the ears of the people, to disturb and check the progress of 
industry in all its departments, to make bankrupts of their 
eostomers, and to sow pauperism broadcast in the field of 
"This compelled policy of the banks, under the stringency 


of the laws which govern them, has been called paying 
specie. But with how little propriety. Instead of paying 
their liabilities with commercial promptness and the faith- 
fulness of those who are discharging a legal and moral 
obligation, they resist it with all the power and weapons 
they can command. In the struggles incident to this resist- 
ance, they strike down friends as well as enemies, and 
deprive the public of an amount of currency necessary to 
business, ten times greater than the specie they are unwilling 
to pay out. And this is the convertibility so long aimed at, 
and to secure which so much legislation and so much 
thought has been expended! This is the triumph of banks 
which pass through a season of panic and revulsion without 
suspending! — a triumph like the victory which leaves 100,000 
dead bodies on the field of battle, which makes 10,000 
widows, 50,000 orphans, and 200,000 paupers." 


With the clear and comprehensive analysis of the princi- 
ples of the bank currency system, contained in the foregoing 
extracts from The Ways and Means of Payment, before us, 
it is not difficult to understand how public notes issued by 
the government can perform the functions of a medium of 

The great object of trade is the exchange of commodities 
and services, and it is immaterial to the parties interested 
whether this exchange is effected by means of a medium 
possessing intrinsic value, or representative value, as long 
as it is done with equal safety, convenience and cost 

Public notes, like bank notes, are virtually based on com- 
modities moving in the channels of trade. There is a con- 
stant interchange of commodities and services on a vast 
scale going on between individuals, growing out of the 


necessities of government, Federal, State and local. To 
effect this exchange a medium is required. On the one side 
are the people, who are obliged to contribute out of their 
substance in proportion to their means towards the expenses 
of government. On the other, there is a vast multitude of 
people to whom the government, Federal, State and local, 
is indebted for commodities and services. The people 
possess abundant property and products desired by the 
creditors of the government, and the only problem to be 
solved is as to the manner in which the exchange can be 
equitably, speedily and economically accomplished. This 
can be done, and as it is a matter in which the entire nation 
is directly interested, it is eminently proper that it should 
be done, through the instrumentality of public notes issued 
by the government. Individuals engaged in trade employ 
the superior credit of banks to enable them to exchange 
commodities and services; and this superior credit of the 
banks, for reasons which have been fully explained, serves 
the purposes of money, in the interval between the time it 
is issued, in the form of bank notes, to creditors of the 
banks, until it is returned by the debtors of the banks. In 
the same manner the superior credit of the government, 
issued in the form of public notes to the creditors of the 
government, performs the functions of money, until it is 
returned to the Federal Treasury by the debtors (tax payers) 
of the government. The bank notes rest upon the credit of 
the institutions which issue them, and are a lien upon the 
assets of the banks, which consist of the property of the 
banks and of their debtors. The public notes rest upon the 
credit of the government, and are a lien upon the whole 
property of the nation. Thus far the analogy between pub- 
lic notes and bank notes is complete, with the advantage 
largely in favor of public notes, for two reasons: in the first 


place, public notes constitute a more economical medium of 
exchange, because they do not bear interest, and in the 
second place their security is more ample. There is not 
an objection to the use of public notes, as a medium of 
exchange, that does not apply with ten fold more force to 
tie use of bank currency; while there are- a great many 
objections to the use of bank currency, which cannot 
be urged against the use of public notes. It is aaid 
by the bullionists and bankers that the " security, though 
ample, is too general and intangible for the purpose;, 
and that the * whole property' can only be reached and 
applied through the slow process of taxation." This is 
begging the question. The process of taxation is going on 
constantly, and in point of fact the "whole property" of the 
people can be reached by a tax warrant much more speedily 
and certainly than the property of the banks and their 
debtors can be reached by process of law. 

Again it is contended by the bullionists and bankers that 
a paper currency, in order to perform the functions of 
money, should be convertible into gold on demand. It has 
already been sufficiently explained that this is impossible 
under the bank currency system, unless the amount of notes 
issued does not exceed the amount of gold held for their 
redemption; and in that event there is no need to issue any 
notes, for the public might as well use the gold. Nothing 
can be clearer than that paper currency is used chiefly for 
the purpose of supplying the deficiency of money occasioned 
by the scarcity of the precious metals; and to issue paper 
notes to the amount of three, five or ten times the amount of 
gold held for their redemption, and say that they are con- 
vertible into gold on demand, is nothing more nor less than 
a fraud and a delusion, which inevitably leads to disaster. 

There is but one way to make paper money equal to 



specie, and that is to clothe it with the ability to perform 
the same functions that specie will perform. That this can 
be done is fully demonstrated by the instances referred to 
by Jefferson* and Calhoun,f and by the experience of the 
French people at the present time. The partial legal tender 
paper money of the United States now in use fails to circu- 
late at a par with gold, because it is not clothed with the 
same powers as gold. That Treasury notes of the govern- 
ment, when made a full legal tender, will circulate at par 
with specie was clearly established by the "old demand 
notes" issued in 1861, which, after they were made a full 
legal tender, went up with gold to $2.85, as compared with 
greenbacks; and at the present time we find the currency 
1>onds of the United States government quoted at a premium 
•of three or four per cent, over gold bonds. 


Much confusion arises in regard to the nature and func- 
tions of money, from the fact that people have been led to 
believe that gold, in some way or other, has been made a 
standard 6£ value. Such is not the fact, either theoretically 
or practically, as will be fully shown. 

The idea of value is something that exists in the minds of 
the people independent of coins. The unit of value, which is 
established by custom and education, whatever may have 
been its origin, is used abstractly. When once a unit of 
value becomes fixed in the minds of the people, or in other 
words has passed into the " money of account," it measures 
all values and is capable of measuring the value of gold and 
silver, the same as any other commodities. "The value of 
the unit, or beginning point, being once firmly fixed in 
men's minds by constant use," says Colwell, "remains there 
wholly independent of subsequent changes of price which 

•See page 66. tSee page 56. 



may affect the specific article from which it took its rise. 
Thus if it sprung from a coin, or a certain quantity of gold 
or silver, it becomes afterwards so independent of these as 
to be quite capable of expressing the changing prices of that 
or any other coin. It is, then, a matter of fact.that all com- 
mercial people keep their accounts, compute money, and 
express prices by the use of a money of account The 
naming a price with them is not naming a coin, or any 
specific quantity of gold or silver; but it is the employment 
of the denominations of the money of account, which all 
understand to express a price. There is scarcely any mental 
operation more generally and constantly in exercise than 
that which is used to express prices." It was thus that the 
people of Great Britain came to keep their accounts in 
pounds, shillings and pence. The unit of value with them 
had its origin in comparing values with the value of a pound 
of silver, which was divided into twenty parts denominated 
shillings. This unit of value was changed by successive 
changes in the silver coinage, until about a century ago, 
since which time the unit of value in England has remained 
unchanged. From about 1660 until 1816, the pound sterling 
had no corresponding piece of coin. The English guinea 
had been intended to represent a pound, but it had not been 
properly adjusted, and, owing also to the fluctuations in the 
price of gold, it varied in value until 17 17, when its value 
was fixed at twenty-one shillings. In 1816, after much delib- 
eration, it was decided to fix the weight of the sovereign at 
5 pennyweights, 3 grains and 171-623 thousandths of a grain. 
It is manifest that the whole difficulty was in establishing a 
coin whose value should correspond to the unit of value 
of the money of account, carried in the minds of the people. 
The English sovereign has since been changed several times. 
The people of the United States have undergone a similar 


experience. Prior to the Revolution the money of account 
of the colonies was expressed in pounds, shillings and pence. 
The unit of value, the pound, not only differed from the 
English pound sterling, but was different in different colo- 
nies. The pound in the following named colonies varied 
from the present money of account in the United States as 

£1 — New England and Virginia, $3.33 or 6s. to the dollar. 
" New York and North Carolina, 2.50 or 8s. " 

" PennsyPnia and Middle States, 2.66 or 7s., 6d. " 
" South Carolina, 4.28 or 4s., 8d. " 

There were no coins in existence corresponding to these 
amounts. These different units of value had their origin in 
various causes, which we will not stop to discuss; but when 
industry and trade had become sufficiently advanced they 
became fixed. The trade of the colonies with the West In- 
dies had introduced into the country a considerable amount 
of Spanish coins. The names and values of these coins did 
not correspond to the money of account of the people, and 
their value was estimated in the money of account of the 
several colonies precisely as that of wheat, or any other 
commodity, was estimated. In 1792 an act was passed by 
Congress with a view to establishing a uniform money of 
account throughout the country. People reckoned in pounds, 
shillings and pence, and paid in Spanish dollars. It will be 
remembered that continental money was payable in " Span- 
ish milled dollars, or the value thereof in gold or silver." 
The Act of Congress of April, 1792, declared— "That the 
money of account of the United States shall be expressed in 
dollars or units, dimes or tenths, cents or hundreths, and 
mills or thousandths; a dime being the tenth part of a dollar, 
a cent the hundreth part of a dollar, etc.; and that all ac- 
counts in the public offices, and all proceedings in the courts 

330 A MONfflAfeY/ SYSfiM FOtTiTDEfi 

of the United States, shall be kept and had in conformity to 
this regulation." This is believed to be the first time that a 
money of account was ever established by law — moneys of 
account having in all nations grown up in the minds of the 
people. The word dollar, however, expressed a value which 
was fully understood by the people, without any reference to a 
fixed amount of gold or silver. The great difficulty consisted 
in fixing the amount of gold and silver that would be equal to 
a dollar. By the same act a coinage of gold and silver was 
provided for; "Dollars, or units, each to be of the value of a 
Spanish milled dollar, as the same is now current, and to 
contain 371 4-16 grains of pure, or 416 grains of standard 
silver. * * Eagles, each to be of the value of ten dol- 
lars, and to contain 247£ grains of pure or 270 grains of 
standard gold." Other coins were to be in the same propor- 
tion. It was then declared and established, that 371 4-16 
grains of pure and 416 grains of standard silver, shall be 
current as money at the price of one dollar, the value of the 
unit of the money of account; and gold eagles and half 
eagles were made current in like manner. The act further 
provides, "that the proportional value of gold to silver, in 
all coins which shall be current as money within the United 
States, shall be as fifteen to one, according to quantity in 
weight, of pure gold or pure silver." 

This attempt to fix the price of gold and silver by law 
proved a failure. The price of gold as compared with silver 
was fixed lower, as it proved, than the market price, arid the 
result was that gold ceased to circulate as money to any 
extent until 1834, when the amount of pure gold in the eagle 
was changed from 247£ grains to 232. After the discovery 
of gold in California and Australia, gold depreciated in value, 
and silver, becoming the more valuable metal of the two, 
according to the standard established by Congress, deserted 



the channels pf trade. This was remedied, in a measure, by 
the act of 1853, which changed the coinage of silver about 
seven per cent. The weight of silver half dollars was fixed 
at 192 grains, and the smaller coins in the same proportion. 
The simple fadt is, that gold anjl silver fluctuate in value 
like other merchandise, being governed entirely by the 
uncontrollable law of supply and demand, and it is about as 
absurd to attempt to fix, by law, an unchangeable price on 
gold or silver as upon a bushel of wheat or a day's labor. 

Sir James Stewart, in his work on political economy, says: 
" Money which I call money of account, is no more than a 
ecale of equal parts, invented for measuring the respective 
value of things vendible. * * Money of account per- 
forms the same office, with regard to the value of things, 
that degrees, minutes, seconds, etc., do with regard to angles, 
or as scales do to geographical maps, or to plans of any kind. 
In all these inventions there is some denoininative taken for 
the unit. In angles, it is the degree; in geography, it is the 
mile; in plans, it is the foot or yard; in money, it is the 
pound, livre, florin, etc. The degree has no determinate 
length, so neither has that part of the scale upon plans or 
maps which marks the unit; the usefulness of all these being 
solely confined to the marking of proportions. Just so, the 
unit in money can have no invariable determinate proportion 
to any part of value; that is to say, it cannot be fixed in 
perpetuity to any particular quantity of gold or silver, or any 
other commodity. The value of commodities depends upon 
circumstances — their value ought to be considered as chang- 
ing with respect to one another only; consequently anything 
which troubles or perplexes the ascertaining these changes 
of proportion by the means of a general determinate and" 
invariable scale, must be hurtful to trade; and this is the 
infallible consequence of every vice in the policy of money 



or coin. * * It does not follow, from this adjusting* 
of the metals to the scale of value, that they themselves 
should, therefore, become the scale." 

It is of course denied by the bullionists that any such cur- 
rency can be established, as will naturally conform to the 
money of account; but upon what other hypothesis can the 
success of the greenback, as a currency, be accounted for? 
During and since the rebellion the greenback has performed 
all the functions of money. Gold in the meantime has ranged 
from par to $2.85. If gold was the standard of value the 
price of all commodities would fluctuate with gold; but com- 
modities rise and fall in price, as measured by the greenback, 
without reference to the price of gold (except articles on which 
duties are paid in gold.) It is said, however, that now that 
matters have become settled the price of gold shows the de- 
preciation of the greenback; and only recently a distinguished 
ex-United States Senator,* in a letter to the Hon. S. S. Cox, 
proposed to change the unit of value (the dollar) from 100r 
cents to say 85, or the supposed present value of the green- 
back as compared with gold. If gold coins and greenbacks 
were on the same footing, such reasoning might carry some 
weight, for there would be reason to believe that the money 
of account of the country had undergone a change; but until 
greenbacks are made a full legal tender, it is entitled to no 
consideration whatever. If gold was only a partial legal 
tender and greenbacks were a full legal tender, greenbacks 
would probably bear a premium over gold, just as currency 
bonds bear a higher premium than gold bonds, because they* 
possess a slight advantage over gold bonds in point of time. 
The inconvertible inscriptions of credit of the Bank of 
Venice were at a premium of 20 per cent, over gold for 
centuries, simply because they were endowed with superior 

•Hon. Edgar Cowan, of Pennsylvania. 


powers to coin; and for centuries these inscriptions of credit, 
conforming as they did by law to the money of account of 
the people, constituted an unvarying standard of value, by 
which all commodities, including gold, were measured. 
The standard of value of the Venetians thus instituted 
changed only with the money of account of the country. 

Gold, if not made a legal tender in payment of debts, 
performs the functions of a medium of exchange simply as 
an equivalent; but when made a tender it is invested with 
additional powers. If the amount of gold put in a dollar 
is less in value than the money of account, injustice is done 
to the creditor; if more, injustice is done to the debtor; 
and when too much gold is put in a coin, it will cease, if 
there is any other tender, to circulate as money at all. The 
fact is that the precious metals, considered in their true 
light, have simply come to perform, in the commercial 
world, the functions of an universal equivalent, and pass 
by weight, except when made a tender in the shape of coins} 
and are subject, in regard to price, to the same laws which 
govern other commodities. At the present time silver is 
some two or three per cent below par, while gold is about 
twelve per cent above, as measured by the greenback* 
This is due almost entirely to the character of the legislation 
which regulates the circulation of gold, silver and paper. 

Gold, then, performs the functions of a medium of 
exchange by reason of its intrinsic value; and public notes 
and bank notes perform the same offices by reason of their 
possessing representative value, not of gold, but of property 
and commodities, including gold. (It will be observed that 
in using the words "public notes," Treasury notes are 
referred to, not as a legal tender, but as a device of the 
credit system, the same as bank notes.) The bank note 
virtually represents the commodities moving in the channels 


of trade, which brought it into circulation, and rests upon 
the credit of the institution which issued it; in like manner 
the public note virtually represents the property or commod- 
ities levied by the government to defray its expenses and 
■discharge its obligations, and is backe d by the credit of the 
government and the entire property of the nation. It was 
in this sense that Calhoun asked, "Why not use its own 
credit (the credit of the government) to the amount of its 
own transactions? Why should it not be safe in its own 
hands, while it shall be considered safe in the hands of 
eight hundred private institutions, scattered all over the 
country, and which have no other object but their own 
private profit; to increase which they extend their business 
to the most dangerous extremes? And why should the 
community be compelled to give six per cent, discount for 
the government credit, blended with that of the banks, when 
the superior credit of the government could be furnished 
separate, without discount, to the mutual advantage of the 
government and the communis?" 

Putyic notes issued by the government for the purpose of 
- effecting the exchange of property a,nd products constantly 
taking place between the people on the one side and the 
creditors of the government on the other, should naturally 
conform to the money of account in which they are stated, 
and would undoubtedly do so if founded upon sound princi- 
ples. The nation possesses abundant property and products 
of almost every description, subject to the demands of the 
government; and the government unquestionably possesses 
the ability to command every dollar's worth of property and 
products belonging to the nation. The credit of the gov- 
ernment, therefore, should be beyond question, and its paper 
should represent and command property and products to the 
exact amount stated qu its face. A note of the government 


is virtually an order given by the people collectively upon 
themselves, payable in property and products. To make 
this order payable in precious metals, when the people have 
no precious metals, or only a veiy limited amount, is 
to render it impossible for the people to comply with the 
order, and compel them to dishonor the public credit. A 
law making public notes payable in diamonds of a certain 
degree of purity and weight would be considered very 
oppressive, as well as absurd, and yet it is upon precisely the 
same principle that the public note is made redeemable in 
gold. The public note will command property and products, 
if properly instituted, to the precise amount inscribed on its 
face, and gold coins can do no more. The creditor of the 
government wants property and products, and the tax payer 
must have money (public notes) to pay his taxes. It is this 
that, in the first instance, gives circulation to public notes. 
The tax payers constitute a vast army of agents engaged in 
selling commodities for public notes, with which to dis- 
charge their obligations to the State, just as the debtors of' 
the banks form a large body of agents engaged in collecting 
bank notes to pay their debts in bank. 


People cannot be compelled to part with their property 
for money, but public policy requires that some equivalent 
of property should be established as a tender in payment of 
debts, and this equivalent is styled money. To the creditor 
it should be immaterial whether this equivalent possessed 
intrinsic or representative value, provided it commanded 
property to the amount attached to it by law. A dollar's 
worth of gold, when coined and declared the only tender, 
is endowed with great advantages over all other kinds of 
property, as well as over the public note which represents 
property. Creditors can refuse to take property or public 


4 . 

notes, at no matter what valuation, but gold coins they are 
obliged to take at the price fixed by law. Hence it is that a 
public note, which represents property to the amount in- 
scribed on its face, and should command property of any 
kind, including gold, will not command gold. The gold 
has been transformed into money by being made a legal 
tender. Gold being clothed with special powers over prop- 
erty, as well as over the public note, comes to be in great 
demand, and, as it is limited in amount, is absorbed by 
capital, to be used as an instrument* to control property and 
public notes; its functions as a medium of exchange are thus 
capable of being perverted, and the object of the legal 
tender law is consequently also perverted, greatly to the 
injury of society and of the public credit. 

The public note is intended to perform the functions of a 
medium of exchange for the exchange of all kinds of prop- 
erty, including gold, and should, therefore, be made a legal 
tender. If any commodity is to be made a tender, it should 
be such a commodity as the people possess or can readily 
acquire at its market value. The great object of trade is the 
exchange of property, not property for money or money for 
property; and money which is designed to effect this ex- 
change should be instituted in such a manner as to form 
an unvarying representative and measure of value, conform- 
ing to the money of account of the nation. But if money is 
made of a commodity, it will rise or fall in value according 
to circumstances, and will render trade uncertain, or, as 
Kellogg aptly expressed it, will make a gambling system 
of all trade. 

The responsibility of furnishing a medium of exchange, 
or declaring what shall be a tender, rests with the Federal 
Government. It is a matter of vital importance to the 
nation, individually and collectively, to have money so insti- 


tuted as to clog the production and exchanges of the nation 
as little as possible. In this advanced age credit is every- 
where used in trade, when credit can be used to exchange 
products more advantageously than a medium of exchange 
possessing intrinsic value. It is not only eminently proper, 
but it is a matter of public advantage, therefore, for the 
government to use its own credit, at least to the extent of 
its own operations. To do this its notes should be made 
a full legal tender, otherwise the people can repudiate 
individually what they have done collectively, which inevit- 
ably works injustice to the creditor of the government, and 
impairs the credit of the nation. 

The bullionists assert that a paper money, not redeemable 
in gold, issued by the government, can possess no value; 
and that it virtually consists of bits of paper with figures 
.and words printed on them; and political economists are 
•found so shallow, or worse, as to adopt this theory. If this 
is true, then are all the paper devices of civilization, by 
.means of which property is held or exchanged, a fraud and 
a delusion. But public notes are not simply bits of paper, 
-to be issued to an unlimited extent. Every dollar emitted 
by the Federal Government in payment for property, ser- 
vices, or in discharge of its obligations, costs the people 
precisely one dollar in property or products, to redeem it 
and return it to the public Treasury. When public notes, 
representing commodities moving in the channels of trade, 
are issued by the government to the extent of its own trans- 
actions and are made a legal tender, they conform to the 
money of account of the nation, and become the measure of 
all values, the standard of all payments and the basis of all 
.money contracts; they, therefore, perform all the offices of 
money, and pass into general circulation. They are paid 
out by the government for property or services at their face 



value; being a tender they pay debts at their face value; 
and in the end are returned to the Federal Treasury in the 
shape of taxes, in lieu of property, to the amount inscribed 
on their face. No evidence of delj>t or device of the 
credit system ever devised possessed greater elements of 
strength and security than the public note of a rich and 
powerful nation, made a legal tender and issued to the 
extent of its own transactions. The notes of the Bank of 
France, as we have seen, although not redeemable in specie, 
circulate at par to the amount of hundreds of millions of 
dollars, when made a legal tender and backed by the credit 
of the people. Who will say that the revenues of the United 
States are not as certain as those of France, or that the ability^ 
of the American people to produce wealth does not equal 
that of the French people, or that the Federal Government 
is not as stable as the French Government? The French 
people are uncertain as to whether they will be living under 
a monarchical or a republican form of government in ten 
years from to-day, and yet we see, at the present time, 
$500,000,000 of inconvertible notes of the Bank of France, 
made a legal tender, circulating at par, on the credit of the 
government; while in the United States the notes of the= 
government, not exceeding $400,000,000 in amount, circulate 
at a depreciation, as compared with gold, of over twelve per 
cent. This is clearly the fault of legislation — making the 
notes of the government only a partial tender, when in order 
to conform to the money of account of the nation, they 
ought to be made a full tender. 


The question as to how much money a nation needs has 
led to a great deal of mystification. A nation evidently 
needs a sufficient amount of money to enable it to effect its 
exchanges in the most economical manner possible. As has 


been explained, many of the operations of trade, especially 
of a large character, can be conducted most speedily, 
economically and safely by means of the devices of the 
credit system, such as bills of exchange, notes, checks, etc.j 
while, on the other hand, in other operations cash is an 
almost indispensable agency. By cash is meant money, 
such as gold or silver coins, or public notes, made a legal 
tender in payment of debts. There should, therefore, be 
a sufficient amount of money in circulation to enable those 
engaged in exchanging property or services to avail them- 
selves of either cash or credit, or both, in such proportions 
as may be most advantageous. 

Under the bank currency system, money, as we have seen,, 
scarcely circulates at all. The medium of exchange consists 
of bank currency, which is used as a substitute for cash. 
Bank currency bears interest, and it, therefore, constitutes 
a very expensive medium — far more expensive than gold 
or silver, or legal tender public notes, which bear interest 
only when used as capital in individual transactions. The 
volume of bank currency is regulated, not by the wants of 
trade or the exchanges to be effected, but by artificial cir- 
cumstances; and it frequently happens that bank currency, 
as at the present time, will desert the channels of circulation, 
almost entirely, because industry cannot afford to pay the 
tax which it entails upon the community. 

The precious metals can be obtained only by digging 
them out of the ground in localities where they exist, or by 
exchanging products for them at their market value; and 
when obtained can be retained in the country only by 
importing commodities to a less amount than are exported. 

Legal tender public notes, like bank notes, can be issued 
to an unlimited amount; and the only question to be con- 
sidered is as to the amount which the government ought to 


issue. It is perfectly clear that the government ought to 
issue, at least, an amount sufficient to conduct its own 
transactions with the people. This amount is based on 
commodities moving in the channels of trade (between the 
tax payers and the creditors of the government), as certainly 
and as securely as any commercial paper or bank currency 
was ever based on commodities, to which they owed their 
origin. The revenues of the government, for example, 
amount to about $300,000,000 a year. This requires an 
exchange of property or products to that amount. How 
much money will it take to effect this exchange? Who can 
tell? The public note, when issued by the government to 
effect this exchange, passes into circulation and performs the 
offices of a medium of exchange, not only for the purposes 
of the government, but for the trade of the nation. Its 
offices are limited, therefore, not by the immediate transac- 
tions of the government, but by the exchanges or trade of 
the entire nation. It follows, then, that the amount of pub- 
lic notes put in circulation by the government should be 
limited only by the exchanges of the nation. This theory, 
as to the amount of money required by a nation, is fully 
recognized and endorsed by political economists, who stand 
high with the bullionists. Professor Bonamy Price, in the 
quotation given on page 236, says: "A cart transfers weight; 
money, ownership; and all the world knows that the cartage 
to be done determines the number of carts," etc.; and again, 
in speaking of the amount of bank notes that will circulate, 
he says: "The answer is the same as that which has already 
been given to the parallel question respecting coin. So 
many bank notes as the public has a distinct want for will 
circulate, and no more. It is the universal law of all com- 
modities in use, the law of demand and supply " 
Money should be instituted in such a manner that t^e 


amount in circulation will conform to the wants of trade, 
otherwise it will not prove an unvarying standard of meas- 
ure and payment. If money is scarce and interest is high, 
all exchanges become difficult and expensive; property and 
products depreciate in value; wages tfall and production is 
diminished. On the other hand, if money is redundant, it 
will depreciate in value, and property, products and wages 
will appreciate in value in a corresponding ratio. In either 
event, money fails to conform to the money of account of 
the nation, greatly to the derangement of all values, and 
especially of exchanges of property founded on contract. 

It is far better, however, for a nation that money should 
be too plenty than too scarce, for when money is scarce pro- 
duction languishes, wages are low, and idleness prevails; but 
when it is too plenty capital alone suffers; and it is better 
for the interests of the nation and of society that capital 
should be idle than labor. In the one instance (if capital is 
idle), people are deluded with the idea that they are much 
better off than they really are, because property rules at 
high figures; and in the other (if labor is idle), the masses 
are much worse off than they ought to be, because property 
and labor are at a great discount; individuals are brought 
to want; the public revenues are cut down; the expenses of 
government become oppressive; and demoralization is rife. 

It is said, however, that, in any event, the amount of 
public notes issued by the government should not exceed 
the annual revenues of the government; otherwise they 
will become redundant. Why limit the amount by the 
revenues of a year, instead of a shorter or longer period? 
This is illusory. The public note performs the offices of a 
medium for the entire trade of the nation, and to limit its 
issue to an amount corresponding to the exact amount of 
the immediate transactions of the government would be 


similar to limiting the amount of bills of exchange used in 
trade to the exact amount of property to be exchanged. It 
is possible that a less amount of public notes would suffice 
to effect the exchanges of the nation; it is probable that a 
larger quantity would be required. Whether the public 
notes issued can be redeemed in the revenues of the govern- 
ment in one, two or three years, is a matter that will not 
effect their value in the slightest degree, as long as their 
security is undoubted and their use is required in the chan- 
nels of trade. This has been abuudantly demonstrated by 
the greenback, both during and since the war. 

It is idle, therefore, for people to speculate as to how 
much money should be issued by the government with a 
view to fixing the amount by law. As already suggested, 
innumerable contingencies are constantly arising which will 
cause the amount required to vary. How much is needed 
can never be known until money is properly instituted, and 
then people will not care to know. Some idea may be 
formed of the vast character of the exchanges constantly 
taking place in the nation, when we reflect that the annual 
product of industry, agricultural ancf manufacturing, in the 
United States exceeds $6,000,000,000 a year, and that this 
mighty mass of products is exchanged many times and in 
many forms. All that can be safely said is that money, 
the principal tool by means of which these exchanges are 
effected, should be commensurate in amount with the work 
to be performed. 

When money becomes too plenty, or, as it is termed, 
redundant, prices go up, property enhances in value, arid 
wages become high. This is detrimental to trade, works 
injustice to creditors, and impairs the public credit, if public 
notes constitute the money of the nation. It is, therefore, a 
matter of almost as much importance to the public that 


money should not be redundant as that it should not be too 
scarce. How is this to-be remedied? Public notes are 
issued by the government for property or services, and are 
returned to the Treasury in the shape of taxes. An increase 
in the rate of taxation would soon relieve the nation of any 
redundancy in the currency, just as bank currency is re- 
turned to the banks under similar circumstances* But in 
this connection another question arises, which has an im- 
portant bearing upon the subject, and that is the question of 


The price paid for the use of money or its substitutes is 
termed interest. When money possesses intrinsic value, as 
in the case of gold coins, the value of the metal of which 
the coin is made is one thing, while the rate of interest 
which the coin will bear is quite another. The fluctuation 
in the price of the precious metals bears no relation to the 
fluctuation in the rates of interest of money. The price of 
gold depends upon the laws of demand and supply, which 
govern the commerce of the world; but the rate of interest 
of money, as money is now instituted, is regulated by causes 
of a local character. Gold may not vary a fraction , in the 
markets of the world, and yet money and its substitutes 
may, at the same time, be in such demand for the purposes 
of trade as to command exorbitant rates of interest. It then 
fails to constitute an unvarying measure of value or standard 
of payment. A dollar that will command 12 per cent, inter- 
est is a very different thing from one that will only com- 
mand 6 per cent. To make money an unvarying measure 
of value and standard of payment, it is necessary that it 
should bear a uniform rate of interest. 

That money should bear interest is not only legitimate, 
but essential to the performance of its functions as a medium 


of exchange. Money represents value and should be able 
to accumulate value; otherwise it would not be accepted in 
exchange for property. But, as has been suggested, its 
power in this respect should be uniform, in order that it 
may prove an unvarying measure of value and standard of 
payment. It has long since been discovered that usury laws 
are in vain", because they are not based upon sound principles. 
But money can, and ought to be so instituted as to com- 
mand only a unif orm rate of interest, proportionate to the 
profits of labor. Money, by reason of its legal tender 
property, naturally possesses a command over property 
and labor, and if it is instituted, as at present, so that it 
can be made to command any rate of interest that can be 
extorted by capital, its functions are not only perverted, but 
it is enabled to rob labor of its entire profits. 

On the other hand, if legal tender public notes are issued 
by the government in excess of the wants of trade, they will 
lose the power of money to accumulate value, and their 
functions as money will be totally perverted, greatly to the 
disadvantage of the nation and to the injury of the public 
credit. It is, therefore, as necessary to provide against a 
redundancy, which will lead to such results, as it is to issue 
public notes to supply the want of a medium of exchange. 

Inflation, in the sense in which the word is now used, is 
undoubtedly an evil, secbnd perhaps only to contraction. 
The application of the term, however, is limited by the 
bullionists to an over issue of public notes, which leads to 
error and confusion. Public notes, if properly instituted, 
do not depreciate in valuo when over issued, because the 
people do not possess sufficient property to redeem them, 
but because the excess is not required for the purposes of 
trade, and they, therefore, fail to accumulate value. It is 
not on account of the weakness of the credit of the people 


that public notes under such circumstances fail to circulate 
on a par with the money of account, but because of their 
redundancy. This is evident from the fact that bonds 
bearing interest, which rest upon the same foundation (the 
public credit) can be issued to a much greater amount thai* 
public notes. An excess of public notes is not, therefore,- 
strictly speaking, an inflation of public credit, but simply a 
superfluous amount of money, an evil which can easily be 
remedied. But it is otherwise with bank currency. Then it 
is not money that becomes inflated, but it is credit, in all its 
forms, that becomes expanded. This is real inflation, and 
is far more dangerous to the interests of society than a 
redundancy of money, because it inevitably leads to com- 
mercial crashes and money panics. The advocates of the 
specie basis or bank currency system are, therefore, the real 
inflationists of the nation. It is possible, as the law now 
stands, to issue bank currency to the full amount of the 
bonded indebtedness of the country, about $1,700,000,000, 
and all that is wanting to call that amount of bank currency 
into circulation is an opportunity. The loans and discounts 
of the banks in 1875 amounted to about $1,000,000,000, 
which indicated the amount of credit used for the purposes 
of trade at that time. 

Bonds of the government bearing interest can be issued 
to a larger amount than public notes, because the ability of 
the public note to accumulate value is limited to its use as a 
medium of exchange, while the amount of bonds which can 
be issued depends upon entirely different considerations. 
Public notes will not seek investment in a bond as long as 
they are needed in the channels of trade. During the war 
$500,000,000 of 5-20 bonds, with which greenbacks were 
convertible, were in the market for over a year, and the 
Secretary of the Treasury was unable to dispose of more than 


$25,000,000. The reason is obvious. The greenbacks ward 
needed for the purposes of trade, and could accumulate value 
more rapidly in the production and distribution of wealth 
than a six per cent, gold interest bond; and it was not until 
the channels of circulation were amply supplied with a 
medium of exchange that the 5-20 bonds could be sold. 

We have already suggested that a redundancy of money 
(legal tender public notes) could be remedied by increased 
taxation; but it may happen, as was the case during the war,, 
that taxation cannot be resorted to, to the extent of the wants' 
of the government, or the necessities of the occasion, with- 
out producing distress and defeating the ends of the gov- 
ernment. It then becomes necessary to employ the credit 
of the government in another form — in the shape of an 
interest bearing bond. This bond or evidence of indebted-- 
ness represents property or products, payable i.i the form of 
money in the future; while the public note represents prop- 
erty in the process of exchange between the tax payer and 
the creditor of the government, and is virtually payable in 
the present. 

. When money (legal tender public notes) becomes redun- 
dant, it is manifest that there are more notes in circulation 
than there is property or products moving in the channels 
of trade to be exchanged through their instrumentality, and 
consequently more than the exchanges growing out of the 
transactions of the government will justify. Taxation most 
be increased to increase the transactions between tax payer 
and creditor; or, if that is inexpedient or unnecessary, the 
form in which the government credit is issued must be 
changed, that is, the public note, not bearing interest, issued 
in excess of the wants of trade, must be converted into a 
bond bearing interest; or in other words, as the government 
note is no longer payable in the present, it must be made 


payable in the future, and justice requires that it should bear 
interest (accumulate value), just as the public note, when 
not redundant, was capable of accumulating value, and this, 
as is obvious, can only be done in the form of a bond. 

A bond, inter-convertible with the public note of the gov- 
ernment, is capable of performing a two-fold service; it will 
prevent a redundancy of public notes, and it will regulate 
the rate of interest which money will command. When 
public notes become redundant and are unable to accumulate 
value, the excess would naturally seek investment in an 
interest bearing bond; and when money (public notes) is 
able to accumulate value more rapidly in production and 
trade, and interest rises, the interest bearing bonds of the 
government would again be converted into money, and thus 
the equilibrium would be restored. 

Money thus instituted could not do otherwise than con- 
form, in value, to the money of account of the nation, and, 
in amount, to the wants of trade. It would then always 
circulate on a par with money of account — a dollar note 
would mean a dollar, neither more nor less, and would 
always command a dollar's worth of property; interest 
would not vary a fraction for any length of time; and 
money would prove, what it is designed to be, an unvarying 
standard of measure and payment. Under such a system 
of money the exchanges of the nation could be effected 
economically and equitably, and capital and labor would 
each secure a due share of the products of industry; and 
commercial crashes and money panics could not possibly 

The amount of interest which an inter-convertible bond 
should bear is a matter of detail which can be settled fully 
only by experience. Interest on money, as has been sug- 
gested, should be in proportion to the profits of industry, 


otherwise capital will be enabled to reap more than its due 
share of the profits of labor. The average rate of increase 
of wealth in the nation is estimated at about 3£ per cent. 
Capital is entitled to a proportionate share of this increase, 
and hence the rate of interest of money should not exceed 
greatly, if at all, the average increase of wealth. For the 
sake of convenience in computing interest it is suggested 
that a bond bearing interest at the rate of one per cent, a 
day on $100, or 3.65 per cent, per annum, should be issued. 
This, as well as other details, can only be settled by expe- 
rience. The important point is the institution of a monetary 
system based on sound principles, and its details can be 
safely left to the government, if its affairs are placed in the 
bands of capable and trustworthy men, in sympathy with 
the wants and interests of the nation. 

It is urged by many who are favorable to the use of the 
public credit, in the shape of public notes, that a bond is not 
an essential part of the legal tender paper money system; 
that it would be absorbed by capital, and in the end would 
constitute a burden upon the nation. This is borrowing 
trouble. The public notes of the government would not be 
funded in an interest bearing bond as long as they could 
accumulate more value in production and trade; and, when 
funded, they would return to the channels of trade as seen 
as their services were required. 

The inter-convertible bond plan is greatly derided by the 
bullionists and their tools, who do not fail to misrepresent 
the principles upon which it is based in eveiy way possible. 
The public note is treated by them as simply a promise to 
pay money, and upon this hypothesis it is not difficult to 
prove that it is a very worthless piece of paper. The public 
note, as has been sufficiently explained, is a representative, 
not of money but of property, and as the great object of 


trade is to exchange property and not money, it is far more 
important that the public note should represent property 
than money (gold coins). The amount of property in the 
country is estimated at #40,000,000,000; the amount of gold 
at $100,000,000. It is to exchange this $40,000,000,000 of 
f>roperty that money is required and not the $100,000,000; 
and to base the public credit on $100,000,000 of gold, when 
it should be based on $40,000,000,000 of property, is in utter 
violation of the plainest principles of the credit system, to- 
which all paper devices for the exchange of property,, 
whether public or private, belong. 

Again it is asserted that the inter-convertible note and 
bond is simply paying one paper debt with another. If the 
public note was simply a promise to pay money this would 
be true, but the public note, properly understood, is not a 
promise to pay money, but is a representative of property to 
the amount inscribed on its face, which the government in 
entitled to demand and receive forthwith from the people, 
and in this sense was described by Calhoun as a "promise 
to receive," and not a " promise to pay."* 


How the papeiS money of the government is to be pat 
into circulation is a matter worthy of consideration, espe- 
cially as friends of the system, with the best intentions in 
the world, have frequently allowed themselves to be led 
into error by failing to carry the principles of the system to 
their logica.1 results. As the public note represents property 
and products which the government is entitled to demand 
and receive forthwith, in the way of taxation, to the amount 
inscribed on its face, and is virtually based on such prop- 
erty or products in the process of transfer from the tax payer 
to the creditor, just as other devices of the credit system 

•See page 60. 


are based on commodities moving in the channels of trade y 
it is clear that it (the public note) should only be issued 
by the government for property or services. If the govern- 
ment should issue public notes without reference to the ability 
of the nation to respond in property and products in the way 
of taxation, as for example, to pay off the public debt in 
paper money, when a corresponding amount of property and 
products could not be transferred at the same time to the 
creditors of the government, would, as is manifest, be a gross 
infraction of the principles upon which the legal tender 
paper money system is founded. The creditors of the gov- 
ernment are paid in property or products, and the public 
note must not only represent such property, but must be 
able to command it, which can be done only to the extent 
to which the people are able to respond in the way of taxa- 
tion. Hence it is idle to talk about liquidating the public 
debt with paper money, or any other kind of money, any 
jnore rapidly than the people are enabled to produce wealth 
(property and products), which can be applied to that pur- 

It has already been explained that the amount of money 
which the government can issue is limited, not by the 
amount of the transactions of the government for any speci- 
fied time, but by the transactions of the entire nation, which 
are constantly varying in amount. But when the channels 
of circulation are supplied with a medium of exchange no 
more public notes can be used; it is essential, therefore, 
that their emission by the government should go hand in 
hand with taxation. 


Debt, whether individual or national, is inconsistent with 
true independence, and the payment of the national debt at 


the earliest day practicable should never be lost sight of for 
a moment. 

If the bonds of the United States are payable in lawful 
money, it is then possible to redeem them in property or 
products, in which they should be redeemable, as rapidly 
as the nation can produce a surplus of products, but if 
made payable in gold, which does not circulate in the 
channels of trade, their redemption is rendered well nigh 
impossible. If forced resumption takes place the public debt 
of the United States may be regarded as permanent, and its 
increase inevitable. The experience of England in this 
respect is worthy of note. At the close of the Napoleonic 
wars in 1815 the producing forces of England were in full 
exercise, and the revenues of the government were enormous. 
England immediately began to reduce her public debt; but 
the money power interfered and resumption was decreed; 
and the liquidation of the public debt ceased. When the 
Rebellion ended in the United States production ran on, 
owing to the abundance of money in circulation, to a mar- 
velous extent, and the Federal Government was enabled to 
reduce the public debt some $500,000,000. But the policy 
of contraction soon curtailed production, the revenues of 
the government began to decline, and the payment of the 
public debt practically ceased. It remains now to return to 
specie payments to render it permanent, and to accomplish 
this end the money power is exerting its best efforts. It is 
to the advantage of the money power to have nations in- 
volved in debt, as well as to have money scarce; in this 
way governments and nations are rendered subservient to 

No event in modern times has spread such alarm among 
the money kings of the world as the adoption of legal 
tender paper money by the people of the United States. 


None know better than the money kings that if the sjtetefci 
is adopted in its entirety, it will ultimately release the mst&dett 
from the bondage in which they have been held for ages" by 
capital, and hence the bitter opposition with which the sys- 
tem meets. For several hundred years past commerce and 
trade 'have been engaged in a constant struggle to cheapen* 
ittoney, the tool of exchange ; but it was not until tire 
United States made the public note a legal tender that atiy 
jyfrogress was made, except in the use of substitutes fdr 
ttfoh'ey, which were controlled entirely by bankers and money 
lenders. When the American government began to issl<6 
legal tender paper money, the money kings of the worKl 
perceived the necessity of taking measures to reverse tfife 
tendency of affairs, and they organized not only to destroy 
legal' tender paper money, but also to demonetise silvef, iA 
bfder that they might be able to maintain their rule. Th&t 
afr organized conspiracy exists to demonetize silver for tlte 
purpose of increasing the power of money, is evident frcJfA 
What has 1 occetirred in Europe and in America withki i!k6 
past few years. Silver has beefr demonetized in Ehglantf, 
Germany and Holland, and practically in Prance and in tfte 
United States. 

No country in the world produces so much gold and silver 
a* the United States, and yet the people of the United State* 
are unable to retain it in the country. The same condition 
of affairs prevailed prior to the war, when we had the specie 
basis system of money, so that the inability of the people ta 
retain gold and silver cannot be charged to the use of public 

The simple fact is that gold and silver cannot be retained 
ia tfee country until the producing forces of the nation are 
sufficiently developed to enable the natron to export moffc 
than it imports; and in the second place gold and silver* &tid 


paper money will not all occupy the channels of circulation 
at the same time, unless they are all clothed with equal 
powers as money. 

If specie circulation is desired, therefore, it can only be 
attained by making gold, silver and the public note equal 
legal tenders; then, as soon as the nation is able to retain 
the precious metals, they will occupy the channels of trade 
as a matter of course. The bullionists and bankers them- 
selves are compelled to acknowledge that forced resumption 
will not give specie circulation, but they say it will fix prices 
at a gold standard. This, as has been fully shown, is not 
only a delusion but a barefaced fraud. The notes of banks 
of issue, which the public will be obliged to use, cannot be 
maintained on a par with coin, if redeemable only in coin, 
unless the banks can retain the coin to redeem them, and to 
say that the banks can retain specie in the country, when 
the nation cannot retain it, is absurd, as well as contrary to 

The only way in which the people can hope to reduce and 

eventually liquidate the public debt, is by the adoption of a 

system of money, such as has been described, which will 

give industry free development, and enable the nation not 

only to largely increase its production of wealth, but to 

render it available when produced. 


Those who desire to fully understand the money question 
can only hope to do so by always keeping in view the fact 
that the great object of commerce and trade is the exchange 
of property and products, and that money is designed to be 
simply a tool to accomplish that end. Money is nothing 
more than "one of man's own inventions, a contrivance 
which he has himself devised for rendering an indispensable 


service to the practical life of every civilized people."* Its 
institution is a governmental duty, and as political sover- 
eignty in the United States, theoretically at least, resides in 
the people, it is incumbent upon them to take hold of this 
question, and compel their servants to dispose of it in such 
a manner as will best subserve the interests, not of a single 
class, but of the entire nation. Thus far almost the entire 
course of Federal legislation has been controlled and 
directed by the few, in utter disregard of the rights of the 
many and of the honor of the government, and especially 
was this the case during the late Rebellion. Eulogies, it is 
true, are frequently heard from servile or subsidized sources 
of the patriotism of capital during that trying period. They 
are utterly false. "Not a patriotic act can be found in its 
history. It neither volunteered its services nor submitted 
to a draft. Its support of the government was purchased at 
the highest price ever paid by a bleeding people. It was in 
truth a traitor to the existence of the Union — a baser traitor 
than he who fought to destroy it upon the field of battle. 
It hid itself from danger, and sold its assistance only for 
enormous pay, while the rebel soldier offered his life on the 
field of battle for nothing, except his devotion to an errone- 
ous principle. While the soldiers of the North, too, were 
freely going to the front by the million, the capitalists, who 
now trample upon them and their children, were allured 
from their safe retreats in the midst of their hoarded treas- 
ures only by vast golden bribes. Neither in law or in 
equity, neither in the sight of human courts or courts divine, 
have they any claim upon the forbearance or gratitude of 
the American people." And then, not content with the 
va«t gains wrung from the people in the hour of their 
extremity, they perfected a plan, to quote again from the 

•Currency and Banking, by Bonauiy Price. 


same eloquent champion of the people's cause,* " to hold the 
bonds of the government as a foundation for banking. The 
wealthy classes were unwilling that the government should 
deal directly with the people and furnish them with a cheap 
and safe currency. They insisted upon standing between 
the government and people. They insisted upon becoming 
the * middle men' in the matter of furnishing a circulating 
medium; and the profits that have accrued to them as such 
'middle men' and have been paid by the tax payers, are 
without a parallel in the history of any other financial sys- 
tem upon the face of the globe. * * A government 
policy which thus taxes its people in order to fulfill a plain 
duty to them, can only be properly characterized as legal- 
ized robbery." 

Since the war every energy has been directed by the 
money power towards the destruction of the greenback 
and a return to the specie basis system of money. The 
machinery of the government is in its hands, and it is now 
aiming to control the two great political organizations of 
the country, in order that it may consummate its purposes. 
The issue has been forced upon the nation by the bullionists, 
the bondholders and the money lenders, whose tools are to 
be found in every party convention and caucus held in the 
country. The crisis has arrived, and the masses must arise 
in their majesty and assert their rights, or liberty in America 
will be a mere phantom. It is not from kings or emperors 
that the American people need fear the loss of liberty, but 
from a moneyed aristocracy, whose hand now rests heavily 
upon the nation. The question is one of paramount impor- 
tance, involving as it does not only the present welfare of 
the people, but the well being of the nation for many gener- 
ations to come. It is a question, too, in which the down- 

•Hon. D. W. Vorhees. 


trodden masses of other nations have a deep interest, foflf^ 
if the money power is able to accomplish its designs in free^ 
republican America, where else can the people hope tcp 
escape its bondage? 

The contest will undoubtedly be bitter, surpassing in that 
respect the memorable contest between the money power 
and the people under the lead of General Jackson in 1832 r 
but "the flower safety is only plucked from- the nettle dan* 
ger." The political organizations of the country are no* 
longer faithful exponents of the popular will, nor can thej^ 
be until the money changers are driven from their temples*' 
The people must regain control of their party machinery^ 
or be led like sheep to the slaughter. But it is to be hoped*, 
in the language of Jackson's farewell address touching tbei 
same subject, "that, while the people remain * * 

uncorrupted and incorruptible, and jealous of their rights^ 
the government is safe, and the cause of freedom will co*» 
tiara to triumph over ail its enemies. 9 ' 



Below we give an able article from the pen of Horace 

Greeley, on the subject of the inter-convertible bond, which 

appeared in the New York Tribune of November 9, 1871. 

It will be observed that Mr. Greeley suggested that the bonds 

should bear a moderate gold interest. This is unnecessary, 

and would be taken advantage of by the gold gamblers* 

The currency bonds of the United States Government to-day 

bear a large premium over the gold bonds, simply because 

tkey possess a slight advantage in point of the time they 

have to run. It may be, however, that, if the public note wad 

properly instituted (made a full legal tender and sustained by 

a bond), it would practically make no difference whether the 

bonds of the government were payable both principal and 

interest in gold or legal tender notes. This view is held by 

many eminent persons. The Hon. Francis W. Hughes, of 

Pennsylvania, a distinguished leader in the democratic party, 

as well as one of the most profound lawyers in the country, 

in a speech at Scranton, Pa., in October, 1875, in discussing 

this point, said : 

"What better system could be devised and what better 
guarantee^ could be afforded, that our paper legal tenders will 
always remain equal to par with gold, than that whenever 
there shall be an excess of currency it can and will go into 
overnment bonds pay able in gold. I say gold, because 
regard it as immaterial whether under such a system the 
bonds be payable in gold or not — either way they can be 
made, as now, better than gold. Our government bonds sell 
at 20 and 24 per cent, above par in our partial legal tender 



currency, and from three to eight per cent, above par in gold. 
Did our government not discredit our greenbacks by refus- 
ing to take them for duties on imports, and did it not thereby 
make a market for gold, the paper legal tenders would have 
always remained at par with gold. The $60,000,000 of full 
legal tenders first issued remained at par with gold, when the 
latter was as to partial legal tenders at a premium of 285- 
Let the bonds be payable in gold, and what then ? Why r 
whenever the issue of legal tenders is in excess of the 
wants of business, by a law of its own nature as fixed as the 
law of gravity, such excess of currency will go back into 
such gold bonds. Can such legal tenders ever get below 
par in gold? Never, so long as government bonds shall be 
at a given rate of interest. Let experience determine this;. 
I believe that under such a system the government credit 
would be so assured that 3.65 bonds, as have been proposed, 
would go above par in gold. In such case the interest 
should be less. Let results determine the proper rate of 
interest, or, if need be, perhaps some functionaries under 
careful guards, might be authorized to lessen or increase the 
rate of interest. This is a subject for legislation, and from 
the many suggestions that have been made a proper method 
can readily be adopted." * * 

"It is not proposed to abolish gold as a legal tender. 
Whether as an article of merchandise or as a coin, let us 
have the benefit of it to the extent we may. But let us also 
have a national currency. One that will not keep us 
involved in European money complications, but secure to 
us perfect independence therefrom." 

The following is Mr. Greeley's editorial: 


"Mr. Boutwell's plan of funding the national debt has 
had a pretty fair trial. True, the times have been adverse, 
but we have generally found them so when we needed to 
borrow money. 

The sum arid substance of the Secretary's success is the 
funding of $200,000,000 at 5 per cAiiit. on the payment of 
the bonus of l£ per cent, to the syndicate of foreign bankers 
who have agreed to take the loan. We would not disparage 
this achievement, for we regard it as decidedly better thau 
nothing. Add to the interest (#;J,000,000) $1,000,000 more 
for the aggregate cost of printing the new bonds, advertising. 


explaining and commending the loan, and the entire cost of 
funding the $200,000,000 at 5 per cent, for ten years is 
$4,000,000. It seems to me that this does not justify a hope 
that our $1,500,000,000 of instantly or presently redeemable 
Mxes can be promptly funded even at 5 per cent. 

Having given to the Secretary's efforts a hearty support 
throughout, we urge that a radically different plan may next 
have a fair trial. Before we send another bond abroad to be 
hawked from banking house to banking house throughout 
Europe, we ask the government to try — just earnestly to try 
— to fund the bulK of our debt at home. We could not 
have sold our bonds during the dark hours of our civil war 
to Europe at any price, no matter how ruinous, if we had 
not first shown our faith in them by taking hundreds of 
millions of them ourselves. So now, having seen how 
reluctantly they take our reissues at 5 per cent., with a dis- 
count, let us show them that we stand ready to take a larger 
amount at a lower rate of interest at par. Here is the gist 
of our proposition. 

Let Congress make pur greenbacks fundable, at the pleas- 
ure of the holder, in bonds of $100, $1,000 and $10,000, 
drawing interest at the rate of one cent per day on each 
$100 (or 3.65 per annum), and exchaneable in greenbacks at 
the pleasure of the holder. Now authorize the Treasury to 
purchase and extinguish our outstanding bonds so fast as it 
is supplied with the means of so doing by receipts of cus- 
toms or otherwise, and to issue new greenbacks whenever 
larger amounts shall be required, every one being fundable 
in sums of $100, 1,000 or $10,000, as aforesaid, at the pleas- 
ure of the holder, in bonds drawing an annual interest of 
3.65 in coin per annum, and these bonds exchangeable into 
greenbacks whenever a holder shall desire it. 

The beuefits of this system would be these: 

1. Our greenbacks, which are now virtual talsehoods, 
would be truths. The government would pay them on 
demand in bonds as aforesaid, which is in substantial ac- 
cordance with the plan on which the greenbacks were first 

2. Every person having greenbacks for which he had no 
present need would present them at some Sub-Treasury and 
-exchange them at par for these bonds. Suppose he had 
$10,000 which he expected to use a month hence, he can 
make them earn him $30 meantime, without incurring the 


smallest danger of loss by bank failures or otherwise, and 
with a positive certainty that the money would be ready for 
him whenever he chose to take it. 

8. A merchant leaves New York with a million of dollars 
which he proposes to invest in wheat at the West or in cot- 
ton at the South. He calls at our Sub-Treasury, exchanges 
his greenbacks for these bonds, and takes or sends these to 
Chicago, Saint Paul, New Orleans, or Galveston, to be 
exchanged for use when needed. After looking about for a 
month, he buys half the produce he originally intended, 
converts half his bonds into greenbacks, receives $50 per 
day or $1,500 in all, as inter est, and makes his payments. 
After traveling and looking for another month, he invests 
the remainder of his -capital, receives $3,000 as interest 
thereon for the two months he has held the last half million 
of bonds, and lays his course homeward. His bonds may 
have lain nearly all the time he owned them in the vaults of 
some bank; but they were earning money, not for that bank 
but for him. 

4. Our greenbacks, no longer false, but convertible at 
pleasure into bonds bearing a moderate gold interest, and 
exchangeable as aforesaid, could not fail to appreciate stead- 
ily until they nearly reached the level of gold. Indeed, they 
would, unless issued too profusely, be really better than 
gold. Drawing a higher rate of interest than British con- 
suls, and convertible at pleasure, as these are not, they 
would in time obtain currency even in the Old World. 

5. The trouble so inveterately borrowed by thousands 
with respect to over-issues, redundant currency, etc., would 
(or at least should) be hereby dispelled. If there were at 
^any time an excess of currency, it would tend to precipitate 
itself into the bonds aforesaid. If there should ever be a 
scarcity of currency, bonds would be exchanged at the 
Treasury for greenbacks till the want was fully supplied. 
Black Fridays and the locking up of greenbacks would soon 
be numbered with lost arts and hobgoblin terrors. 

6. Though the demand for these bonds might for months 
be moderate, their convenience and manifest utility would 
soon diffuse their popularity and stimulate an ever widening 
demand for them. They would be a favorite investment 
Vith guardians and trustees who would expect to be required 
to pay over the funds held by them at an early day, whether 
fixed or uncertain. They would say, though I might invest 


or deposit these f uuds where they would command a higher 
interest, I choose to place them where I know they will be 
safe and at hand when called for. 

7. -Ultimately, we believe they would become so popular 
that hundreds of millions of them would be absorbed at or 
very near the par of specie, and that with the proceeds an 
equal amount of our outstanding sixes might be redeemed 
and cancelled, without advertising for loans or paying 
bankers to shin for us throughout Europe. The interest 
thus saved to our country would be an important item. 

Such are the rude outlines of a plan which we did not 
originate, but which we heartily endorse. Why not give it 
a trial? We should dearly like to inform Europe that, since 
/she seems not to want any more of our bonds at 5 per cent., 
we have concluded to take the balance ourselves at 3§." 



The following is a copy of the principal sections of the 
^ret legal tender bill as it passed the House of Representa- 
tives, February 6, 1862: 

"An Act to authorize the issue of United States notts, 
and for the redemption or funding thereof and for 
funding the floating debt of the United /States. 

Section 1. Be it enacted by the Senate and House of 
Representatives of the United /States, in Congress As- 
sembled: That to meet the necessities of the Treasury of 
the United States, and to provide a currency receivable for 
the public dues, the Secretary of the Treasury is hereby 
•authorized to issue, on the credit of the United States, $150-, 
000,000 of United States notes, not bearing interest, payable 
to bearer at the Treasury of the United States, at Washing- 
ton or New York, and of such denominations as he may 
deem expedient, not less than five dollars each. Provided., 
however, that $50,000,000 of said notes shall be in lieu of 
the demand Treasury notes authorized to be issued by the 
Act of July 17, 1861; which said demand notes shall be 
taken up as rapidly as practicable, and the notes herein pro- 
vided for substituted for them: And provided, further, 


that the amount of the two kinds of notes together, shall, at 
no time, exceed the sum of $150,000,000. And such notes, 
herein authorized, shall be receivable in payment of all 
taxes, duties, imports, excise, debts and demands of every 
kind due to the United Suites, and for all salaries, debts and 
demands owing by the United States to individuals, corpo- 
rations and associations within the United States, and shall 
also be lawful money and a legal tender, in payment of all 
debts, public and private, within the United States. And 
any holders of said United States notes, depositing any sum 
not less than $50, or some multiple of $50, with the Treas- 
urer of the United States, or either of the Assistant Treas- 
urers, shall receive in exchange therefor duplicate certificates 
of deposit, one of which may be transmitted to the Secretary 
of the Treasury, who shall thereupon issue to the holder an 
equal amount of bonds of the United States, coupon or 
registered, as may by said holder be desired, bearing interest 
at the rate of six per centum per annum, payable semi-annu- 
ally, at the Treasury or Sub-Treasury of the United States, 
and redeemable at the pleasure of the United States, after 
twenty years from the date thereof. Provided, that the 
Secretary of the Treasury shall, upon presentation of said 
certificates of deposit, issue to the holder thereof, at his 
option, and instead of the bonds already described, an equal 
amount of bonds of the United States, coupon or registered, 
as may by said holder be desired, bearing interest at the rate 
of seven per cent, per annum, payable semi-annually, and 
redeemable at the pleasure of the United States, after five 
years from the date thereof. And such United States notes 
shall be received the same as coin, at their par value, in 
payments for any loans that may be hereafter sold or nego- 
tiated by the Secretary of the Treasury, and may be reissued 
from time to time, as the exigencies of the public interests 
shall require. There shall be printed on the back of the 
United States notes, which may be issued under the provi- 
sions of this act, the following words: 'The within is a legal 
tender in payment of all debts, public and private, and is 
exchangeable for bonds of the United States, bearing six 
per centum interest at twenty years, or in seven per cent, 
bonds at five years.' 

§ 2. And be it further enacted. That to enable the 
Secretary of the Treasury to fund the Treasury notes and 
floating debt of the United States, he is hereby authorized 


to issue, on the credit of the United States, coupon bonds, 
or registered bonds, to an amount not exceeding $500,000,- 
000, and redeemable at the pleasure of the government, after 
twenty years from date, and bearing interest at the rate of 
six per centum per annum, payable semi-annually; and the 
bonds herein authorized shall be of such denominations, not 
less than fifty dollars, as may be determined upon by the 
Secretary of the Treasury; and the Secretary of the Treasury 
may dispose of such bonds at any time for lawful money of 
the United States, or for any of the Treasury notes that have 
been, or may hereafter be, issued under any former act of 
Congress, or for United States notes that may be issued 
under the provisions of this act; and all stocks, bonds, and 
other securities of the United States, held by individuals, 
corporations, or associations, within the United States, shall 
be exempt from taxation by any State or county. 

§ 3. And be it further enacted: That the United States 
notes and the coupon or registered bonds, authorized by this 
act, shall be in such forms as the Secretary of the Treasury 
may direct, and shall bear the written or engraved signatures 
of the Treasurer of the United States, and the Registry of the 
Treasury* and also as evidence of lawful issue, the imprint 
of a copy of the seal of the Treasury Department, which 
imprint shall be made under the direction of the Secretary, 
after the said notes or bonds shall be received from the 
engravers, and before they are issued; or the said notes and 
bonds shall be signed by the Treasurer of the United States, 
or for the Treasurer by such persons as may be especially 
appointed by the Secretary of the Treasury for that purpose, 
and shall be countersigned by the Register of the Treasury, 
or for the Register by such persons as the Secretary of the 
Treasury may especially appoint for that purpose; and all 
the provisions of the act entitled 'An act to authorize the 
issue of Treasury notes,' approved the 23d day of December, 
1857, so far as they can be applied to this act, and not 
inconsistent therewith, are hereby revived and re-enacted; 
and the sum of $300,000 is hereby appropriated, out of- any 
money in the Treasury not otherwise appropriated, to enable 
the Secretary of the Treasury to carry this act into effect." 

Two penal sections (§ 4 and § 6) were adopted as part of 
this bill, to guard against counterfeiting, but it is not impor- 
tant to insert them here, as they do not affect the principles 
of the bill. 




"An Act to authorize the issue of United States notes, 
and for the redemption or funding thereof and for 
funding the floating debt of the United /States. * 

Be it enacted by the Senate and House of Represen- 
tatives of the United States, in Congress assembled : 
That the Secretary of the Treasury is hereby authorized to 
issue on the credit of the United States one hundred and 
fifty millions of dollars of United States notes, not bearing 
interest, payable to bearer, at the Treasury of the United 
States, and of such denominations as he may deem expe- 
dient, not less than five dollars each. 

Provided, however, that fifty millions of said notes shall 
be in lieu of the demand Treasury notes authorized to be 
issued by the act of July 17th, 1861, which said demand 
notes shall be taken up as rapidly as practicable, and the 
notes herein provided for substituted for them; and 

Provided further, That the amount of the two kinds of 
notes together shall at no time exceed the sum of one hun- 
dred and fifty millions of dollars; and such notes herein 
authorized shall be receivable in payment of all taxes, inter- 
nal duties, excises, debts and demands of every kind due to 
the United States, except duties on imports, and of all 
claims and demands against the United States of every kind 
whatsoever, except for interest upon bonds and notes, which 
shall be paid in coin; and shall also be lawful money and a 
legal tender in payment of all debts, public and private, 
within the United States, except duties on imports and 
interest as aforesaid; and any holder of said United States 
notes depositing any sum not less than fifty dollars, or some 
multiple of fifty dollars, with the Treasurer of the United 
States, or either of the Assistant Treasurers, shall receive in 
exchange therefor duplicate certificates of deposit, one of 
which may be transmitted to the Secretary of the Treasury, 
who shall thereupon issue to the holder an equal amount of 
the bonds of the United States, coupon or registered, as may 
by said holder be desired, bearing interest at the rate of six 
per centum per annum, payable semi-annually, and redeema- 
ble at the pleasure of the United States after five years, and 
payable twenty years from the date thereof; and such United 
States notes shall be received the same as coin, at their par 


value, in payment for any loans that may be hereafter sold 
or negotiated by the Secretary of the Treasury, and may be 
reissued from time to time as the exigencies of the public 
interests shall require. 

§ 2. And be it further enacted, That to enable the 
Secretary of the Treasury to fund the Treasury notes and 
floating debt of the United States, he is hereby authorized 
to issue on the credit of the United States coupon bonds or 
registered bonds, to an amount not exceeding five hundred 
million dollars, and redeemable at the pleasure of the United 
States after five years, and payable twenty years from date, 
and bearing interest at the rate of six per centum per annum, 
payable semi-annually; and the bonds herein authorized 
shall be of such denomination, not less than fifty dollars, as 
may be determined upon by the Secretary of the Treasury; 
and the Secretary of the Treasury may dispose of such bonds 
at any time at the market value thereof, for lawful money, the 
coin of the United States, or for any of the Treasury notes 
that have been, or may hereafter be, issued under any former 
act of Congress, or for the United States notes that may be 
issued under the provisions of this act; and all stocks, bonds, 
and other securities of the United States held by individuals, 
corporations or associations within the United States, shall 
be exempt from taxation by or under State authority. 

§ 3. And be it further enacted, That the United States 
notes and the coupon or registered bonds authorized by this 
act shall be in such form as the Secretary of the Treasury 
may direct, and shall bear the written or engraved signatures 
of the Treasurer of the United States and the Register of 
the Treasury, and also, as evidence of lawful issue, the im- 
print of a copy of the seal of the Treasury Department, which 
imprint shall be made under the direction of the Secretary, 
after the said notes or bonds shall be received from the 
engravers, and before they are issued; or the said notes and 
bonds shall be signed by the Treasurer of the United States, 
or for the Treasurer, by such persons as may be specially 
appointed by the Secretary of the Treasury for that purpose, 
and shall be countersigned by the Register of the Treasury, 
or for the Register, by such persons as the Secretary of the 
Treasury may appoint for that purpose; and all the provi- 
sions of the act entitled 'An act to authorize the issue of 
Treasury notes, approved the twenty-third day of December, 
eighteen hundred and fifty-seven, so far as they can be applied 


to this act, and not inconsistent therewith, are hereby 
revived and re-enacted; and the sum of three hundred thou- 
sand dollars is hereby appropriated, out of any money in 
the Treasury not otherwise appropriated, to enable the Sec- 
retary of the Treasury to carry this act into effect. 

§ 4. And be it further enacted, That the Secretary of 
the Treasury may receive from any person or persons, or 
any corporation, United States notes on deposit for not less 
than thirty days, in sums of not less than one hundred dollars, 
with any of the assistant treasurers or designated deposito- 
ries of the United States authorized by the Secretary of the 
Treasury to receive them, who shall issue therefor certificates 
of deposit, in such form as the Secretary of the Treasury 
shall prescribe, and said certificates of deposit shall bear 
interest at the rate of five per centum per annum; and any 
amount of United States notes so deposited may be with- 
drawn from deposit at any time after ten days' notice on the 
return of said certificates; Provided, that the interest on 
all such deposits shall cease and determine at the pleasure 
of the Secretary of the Treasury; and Provided further ', 
that the aggregate of such deposits shall at no time exceed 
the amount of twenty-five million dollars. 

§5. And be it further enacted* That all duties on imported 
goods which shall be paid in coin, or in notes payable on 
demand, heretofore authorized, to be received and by law 
receivable in payment of public dues, and the coin so paid 
shall be set apart as a special fund, and applied as follows: 

First — To the payment in coin of the interest on the bonds 
and notes of the United States. 

Second — To the purchase or payment of one per centum 
of the entire debt of the United States, to be made within 
each fiscal year after the first day of July, 1862; which is to 
be set apart as a sinking fund; and the interest of which 
shall in like manner be applied to the purchase or payment 
of the public debt, as the Secretary of the Treasury shall 
from time to time direct. 

Third — The residue thereof to be paid into the Treasury 
of the United States." 

The penal sections (§ 6 and § 7), in relation to counter- 
feiting, etc., of no importance here, are omitted. 


When Congress convened in December, 1862, the Hon. 
Thaddeus Stevens, Chairman of the Committee of Ways and 
Means, offered a bill similar to the origiual legal tender bill, 
which passed the House 6f Representatives, February 6, 1 862. 
This bill was intended to remedy the evils which had re- 
sulted from the partial legal tender act, but the money 
power raised a great hue and cry, and Mr. Stevens, finding 
that it was impossible to cany the measure, was forced to 
abandon it. His remarks upon the occasion were as fol- 

Mr. Stevens. I ask the gentleman from Maryland, (Mr, 
Crisfield,) who is entitled to the floor, to permit me to make 
a statement in reference to the national finances. 

Mr. Cri8FTELd. I yield to the gentleman for that purpose. 

Mr. Stevens. The bill which I introduced some days 
since, to provide means to defray the expenses of the govern- 
ment, produced a howl among the money-changers as hide- 
ous as that sent forth by their Jewish cousins when they 
were kicked out of the temple. It produced, what seemed 
to me, an unaccountable excitement in financial circles. This 
was caused, I suppose, by wrong information as to its origin, 
and a misunderstanding as to its object. This was partly 
the fault of letter writers, and partly the fault of stock-job- 
bing money editors. I perceive the money article of the 
Philadelphia Press, of Monday of this week, represents the 
bill as reported by the Committee of Ways and Means, not- 
withstanding the papers of last week stated its true origin. 
I suppose these money-article editors are some dishonest 
brokers who make gain by their misrepresentations. The 
bill, as all knew who wished to know, was introduced by me 
on my individual responsibility, on the call of the States, 
with the sole object, as I then stated, of referring it to the 
Committee of Ways and Means. Neither the Secretary of 
the Treasury nor the Committee of Ways and Means had 


ever been consulted with regard to it; nor, although referred 
to them on motion of the mover, has it ever been considered 
by the committee. 

So much for the origin of the bill. 

Its contents and objects seem to be equally misunderstood 
or misrepresented. 

It is known to this House that I do not approve of the 
present financial system of the government. When this 
Congress assembled a year ago, all the banks of the Union, 
as well as the government, had suspended specie payments. 
The last $50,000,000 of loan, which had been taken by the 
banks at a discount of $5,500,000, payable in coin, was no 
longer paid in anything but the currency of suspended banks. 
The immense expenses of the government, (from $2,000,000 
to $3,000,000 daily,) were to be provided for. It was impos- 
sible to negotiate loans, except at a ruinous discount. The 
Committee of Ways and Means were expected to provide the 
means, without any suggestions from any quarter to aid 
them. After careful deliberation, the committee, or rather 
as it turned out, the one-half of them, determined to inaugu- 
rate a system of national currency consisting of legal tender 
notes, receivable in all transactions between individuals, and 
between individuals and the government, and Convertible 
into bonds of the United States, bearing six per cent, inter- 
est, payable semi-annually in lawful money, and redeemable 
in twenty years in gold or silver coin. The issue of $150,- 
000,000 of such notes was authorized, and of $500,000,000 
of twenty years bonds. 

The system was simple in its machinery, and easily un- 
derstood. It formed a uniform currency, sustained by the 
faith of the government, and furnishing but one currency 
for all classes of people. It was believed that as the legal 
tender notes accumulated in the hands of bankers and capi- 
talists they would invest them in six per cent, bonds, so as 
to realize a profit from their capital. The instinct of avar 
rice and gain would never allow them to remain long idle. 
This conversion and reconversion would have absorbed the 
$500,000,000 within the fiscal year, and supplied all the 
wants of government. So long as the legal tender notes 
remained unconverted the government would have had the 
benefit of the circulation without interest. This was the 
plan of the committee. The currency has proved the most 
acceptable ever offered to the people. This was the condi- 



Am bf the bills as presented originally, and as they passed 

But the simplicity and harmony of this system were 
doomed to be mangled and destroyed as it passed through 
the Senate. They began by making two kinds of currency 
'for the same community — a fatal mistake wherever it occurs. 
They provided that bonds issued as above stated should re- 
ceive the interest in gold, while the interest of all other 
bonds should be payable in legal tender notes, thus produc- 
ing at the outset a depreciation of the United States notes, 
and creating a demand for gold to be taken advantage of 
semi-annually by bullion mongers. Without such provision 
there would have been no demand for a single dollar of 
gold to be used in this country. If merchants wished to 
import goods beyond our exports, and that required gold, I 
should feel but little sympathy for them, whatever premium, 
they were obliged to pay. Being unable to defeat this pro- 
vision, I procured to be inserted a provision making the du- 
ties on imports payable in gold. This was to enable the 
government to meet the payment of interest in coin. That 
had one good and one bad effect. It increased our tariff 
some thirty per cent., but it compelled our merchants to go 
among the Shylocks to purchase coin to pay their duties. 
These combined provisions form a mine of wealth for 
brokers and bankers. The duties and interest will require 
$60,000,000 of gold annually, and soon double that amount. 
Now, our banks and brokers have scarcely that amount on 
hand. They may put the price as high as they please, it 
must be paid. Suppose the banks in our three great com- 
mercial cities to have just that amount. If half-yearly they 
sell the half of it to the government and merchants at thirty 
per cent., using the other half to the end of the year ana 
then selling it, they would clear by this single operation 
thirty per cent, on their capital, and have all the profits of 
loans, on deposits, and currency circulation besides. The 
gold would return to their vaults, possibly, by the payment 
of interest on the very bonds they held themselves, and so 
to be ready for the same operation at the next semi-annual 
payment, doubling their capital in three years. If a finan- 
cial system which produces such results be wise, then I am 
laboring under a great mistake. 

The next error was to change the twenty-year bonds into 
bonds redeemable at the option of the government in five 


years, and payable in twenty years. We all know these long* 
loans sell much higher than short ones. But the most un- 
salable kind of bond is that payable in a short time if the 
obligor choose, or at any intermediate time up to a distant 
day at his option. Every man wishes to know when his in- 
vestment will fall due, so as to know how to arrange for busi- 
ness for re-investmeiit. The very uncertainty of the day of 
payment is a great fault; hence our bonds sell some five per 
cent, lower than an absolute twenty-year loan would; yet no 
one believes that we shall be able to redeem them short of 
that time. The only justification for this change would be 
the expectation of being able to pay in five years. He must 
be a very hopeful man who can indulge that idea. 

Another change, which seems to me equally injudicious^ 
was the allowing the holders of legal tender notes to deposit 
them with the government agent at interest not exceeding 
five per cent., and payable on call after ten days. This ef- 
fectually destroyed the hope of any very speedy conversion 
pf them into bonds. A holder of them would much prefer 
lending them on short call at a smaller interest, and wait for 
emergencies to speculate, than to fund them in government 
stock. The consequence is, that while $80,000,000 have 
been deposited on short loan, only about $20,000,000 have 
been invested in bonds. One singular feature of this pro- 
vision is, that when $50,000,0.00 or more of these notes are 
thus borrowed by government, the Secretary of the Treasury 
Bhall keep on hand $50,000,000 of legal tender notes to meet 
the call, either by not issuing the amount authorized, or 
holding others. It is, in effect, the same as if the govern- 
ment agreed to take a loan of $50,000,000 at four per cent.,, 
and keep it in their vaults without use until the lender called 
for it; in other words, paying four per cent, interest for the 
privilege of holding unused a special deposit. How these 
short loans and the pressing demands for other claims are to- 
be paid, at least after all the greenbacks are once issued, I 
do not well see. Had they twenty years to run, I should 
feel easy. These are the objections which I have to the 
present system. 

I will now briefly state the provisions of the bill which I. 
introduced. It was intended to restore the law just to the 
condition in which it left the House of Representatives, and 
nothing more. 

iThe first section provides that the Secretary of the Treas- 


ury shall pay off and cancel all the five»-twenty bonds and all 
others whose interest is payable in gold, and to exchange 
new bonds for them on such terms as shall be agreed on, or 
pay them in legal tenders. 

Certain money editors have professed to see in this a vio- 
lation of public faith, which promised the payment in gold. 
Nothing is more false. It proposed to lift these bonds, by 
negotiating with the holders, at such rates as could be agreed 
on. If the holder declined to sell, he would be entitled to 
receive his interest in gold, according to the original con- 
tract. I suppose no man could be found in this House base 
enough to propose repudiation. None but a very stupid man 
could so misread the bill. True, it proposed to issue no more 
bonds of that kind, and repealed the law authorizing it. And 
yet it has been thought of sufficient importance gravely to* 
introduce the resolution here declaring in advance that we 
intended to make no change in the law. What business has 
anybody to inquire whether in our future issue of bonds we 
intend to pay the interest in coin or legal tender? It is 
enough for them to know that in contracts already executed 
the government will keep its faith. 

It further proposed to pay off the legal tender interest- 
bearing deposits, and to repeal the law authorizing such 
loan. It has turned out just as the committee predicted, 
that such demand loan has prevented the conversion to any 
considerable amount. While $80,000,000 of legal tender 
are deposited on call, but about $20,000,000 have been 
invested in bonds. It is obvious that at that rate the sale 
of bonds will aid but little in carrying on the war. 

It proposes to repeal the law requiring the payment of 
duties in coin, as well as the interest on future issues of 
bonds, except one-fifth of the amount of duties. This is 
retained so as to furnish the government with coin to defray 
the foreign diplomatic and consular expenses, and the 
charges of our courts in foreign ports, and the costs of des- 
titute seamen. Thus the whole currency needed in this 
country would be legal tender United States notes. The 
bullion mongers would lose; the merchants and government 
would gain. 

Having restored the law to its original shape, it proposes 
to raise money to pay the pressing debts due to depositors 
and gold-bearing bonds, the pay due soldiers, and other 
expenses, by issuing legal tender notes, not exceeding 


$200,000,000 beyond those already authorized, and to issue 
$1,000,000,000 of bonds, bearing six per cent, interest, pay- 
able semi-annually in lawful money, and redeemable in 
twenty years in coin. With $500,000,000 of legal tender 
notes in circulation, they would accumulate so fast with 
capitalists and banks that the holders would be glad to turn 
them to profit by purchasing the loans; and I doubt not 
before the year would expire the whole $1,000,000,000 of 
bonds would be called for at par. In my opinion, with the 
present law this amount can never be sold except at ruinous 
discount. I believe that thin disposes of the provisions of 
this bill, which were intended to restore the committee's 
project, and which was sanctioned by a large majority of 
the House. 

The balance of the bill refers to State banks, and imposes 
a tax of fifty per cent, on all their circulation beyond one- 
half of their capital. This tax is obviously intended for 
prohibition, and not for revenue. I incline to think it should 
nave taxed all above three-fouqths, instead of one-half of the 
capital. The object of this provision was two-fold: first, 
to give a wider circulation to United States notes, and thus 
induce their conversion; secondly, to prevent the undue 
inflation of the currency. I suppose that such a law would 
drive at least $100,000,000 of bank notes out of circulation, 
leaving about the same amount afloat. These, together with the 
United States notes, would give a circulation of $600,000,000. 
I believe the business of this country requires that amount. 
Before the rebellion the paper issues were over $200,000,000, 
and the coin was at least $300,000,000. I suppose what 
may properly be called the present circulation amounts to 
more than that sum. The checks which pass as currency in 
our large cities are as much a paper circulation as bank 
notes. They amount to some $200,000,000, I imagine, and 
almost entirely supersede bank notes in New York and 
Boston. When it was said that the currency necessary to 
do the business of Great Britain was near two billion dol- 
lars, the bank note circulation was less than four hundred 
millions. The rest was supplied by bills of exchange. 

But in times of suspension of specie payments, banks will 
expand to an unlimited amount unless restrained by some 
national law. I can account for the present high price of 
everything in no other way than by such expansion or the 
expectation of it. I fear the true amount of present circula- 


tion is not ascertained. Take, as an example, a very sound, 
well-managed bank in my own district; it has a capital of 
$320,000; it holds about $150,000 of United States six and 
seven-thirty per cent, bonds; it has on short loan $250,000 
legal tender; it has $80,000 in coin; and its circulation is 
#800,000. In an adjoining district a bank with $400,000 
capital has more than its whole capital invested in United 
States loans, and has a circulation of $1,000,000. Such 
issues must inflate the currency. The people will run mad 
with speculation, and in a few years a general crash will 
follow. My proposition would not reduce bank profits below 
a fair gain. While suspension continues they might hold, as 
they now have, their whole capital in government stocks, 
bearing at least six per cent, per annum. They could have 
the profits of a circulation equal to three-fourth of their cap- 
ital, and bank on whatever deposits they have. This would 
give them at least ten per cent, interest to pay their expenses 
and dividends to stockholders. This is enough 

But I ought perhaps to say, before I close, to my country 
"banking friends that they need not be alarmed. There is 
no great prospect that we shall return to the system I have 
indicated, nor do much to protect the people from their own 
eager speculations. When, a few years hence, the people 
shall have been brought to general bankruptcy by their 
unregulated enterprise, I shall have the satisfaction to know 
that I attempted to prevent it. 

Mr. Stevens' views in regard to the defects of the partial 
legal tender system have been fully confirmed by fourteen 
years' experience, and his predictions have been verified in 
.a remarkable manner. Notwithstanding the defects of the 
system, however, and in spite of hostile legislation and the 
existence of the National Banks, it has proved immensely 
superior to the specie basis or bank currency system, which 
cursed the country for over half a century prior to the 
Rebellion, and which the bullionists and bankers are now 
seeking to re-establish. The people have been brought to 
the verge of bankruptcy by the machinations of the money 
power, and the interests of the nation demand that a full 


legal tender money system be now given a fair trial. This 
end can only be accomplished at the polls. The bullioniste 
and bankers, and their tools, are already in the field, manip- 
ulating party conventions and caucuses all over the country, 
to carry out their designs. The masses must organize 
against them, throw party prejudice aside, and vote for no 
man for any official position, from the lowest to the highest, 
who is not known to be honestly in sympathy with the peo- 
ple's cause, and in favor of full legal tender money. 


Moiithly Range of the Gold Preminin for Fourteen Tears. 

The following table shows the lowest and highest prices 
of gold at New York, for each month in the last fourteen 
years. The leftrhand column of each year shows the lowest 
price, and the rightrhand column the highest.*' 

•From the Tribune Almuu for !»!». 



French Assignats and Continental money are ghosts 
which have been conjured up to frighten the public by the 
bullionists and bankers, who wish to monopolize the right to 
furnish the circulating medium of the nation. The subject 
of Continental money was fully disposed of in the chapter 
on Banks of the United States;* and a word of explanation 
in regard to French Assignats seems to be necessary. Thiers, 
in his life of the celebrated John Law, tells what Assignats 
were as follows : 

" Assignat was a name given to a peculiar species of paper 
money, issued during the first French revolution. * * 
The first issue of assignats was made on the security of the 
forfeited [confiscated Ecclesiastical] property; and was. 
adopted as a preferable alternative to throwing the forfeited 
lands on the market; which, * * so large an amount 
of property would glut. The holder of the assignats might 
use them as money or claim the land which they repre- 

" The French revolutionary government wished to pay the 
debt of the monarchy and the expense of a universal war 
with the national property [confiscated church property], this 
property not being disposable, on account of the quantity 
and want of confidence, it anticipated the sale, and repre- 
sented the results by papers called assignats. * * 
But as the success of the revolution began to be distrusted,, 
and doubts arose as to the maintenance of the national sale, 
they declined, and, as they declined, the government, to 
supply the deficiency, in value, was obliged to double the 
issue, and the repletion contributed, with distrust, to depre- 
ciate them." 

Upon the overthrow of the revolutionary government and 
the formation of a responsible government, under Napoleon, 
the church property was restored to its lawful owners, and 
the assignats became worthless. 

To compare the legal tender money of the United States 
to assignats, is simply an insult to the intelligence of the 
American people. 

•See page 112. 



"The most fundamental and important truths in relation 
to the nature of money, have always been so covered up by 
the technicalities of law as completely to deceive the people 
respecting its true character, although they have always 
known and felt that there was something wrong in its power. 
Writers upon political economy, as well as the public in 
general, have taken it for granted that the laws of nations 
were right in foun<Jing the value of money in the innate 
value of the gold and silver metals out of which it was 
coined: hence the conclusions at which they must all arrive 4 
are just as false as the premises upon which they start. And 
political economists may continue to write and the public 
may continue to argue upon these premises for centuries to 
come, and be just as far from the truth as when money was 
instituted upon Ihis basis. Notwithstanding this mystifica- 
tion about money, its true character and power «.re very 
simple, and need only to be clearly and fairly stated to meet 
the approval of the common mind; and then the public must 
know that the present centralizing power of money is as 
gross an imposition upon the common sense of man, as it is 
upon t]ie common rights of labor and property. For if the 
material of neither gold, silver nor paper money can in itself 
be used as food, clothing or shelter, then certainly the 
scarcity or abundance of money, or the scarcity or abundance 
of the materials of money, ought never in the least to inter- 
fere with a general and full supply of all the necessaries of 
life. For these necessaries of life are evidently the product 
of labor, and not the product of money. Yet the present 
power of money is such that the people are compelled first 
to work for money, and then to depend upon the power of 
money to supply the necessaries of life. Thus the power of 
money is first, and the power of labor is second. The 
money commands the labor instead of labor commanding 
the money. This is exactly reversing the true order of 
things, for it is making a dead centralizing power to rule 
and tyrannize over the living, productive power, whereas 
the productive ought always to command the unproductive 
power. If any writers upon political economy, or any finan- 
ciers, have discovered the true nature, power and use of 
money, they have not made such discovery manifest to the 
understanding of the public. For the laws of nations, as 
well as the newspapers and other publications of the day, 


are still carrying forward and enforcing the idea that money 
is a productive, living power. Yet the power of money is 
entirely a dead power, and totally unproductive, notwith- 
standing its legal, accumulative powers." 

"The avarice that pervades the civilized world has been 
ingrafted upon society by the too great power of money. 
In most countries it has made production by labor degrading 
to the child whose necessity compels him to perform it. 
The skill to gain by lending money, aifd by taking advan- 
tage of others in bargaining, has been, and is taken as evi- 
dence of superior talent, until, by example and precept, 
avarice has been instilled into the minds of childern. It 
has grown with their growth and strengthened with their 
strength until it has corrupted the very foundations of 
society. The per eentage incomes on bank, railroad, State, 
and other stocks, and the rates at which money can be bor- 
rowed and lent, are the great leading topics of a business 
community. The topics are not, How shall we contrive to 
produce by our labor the greatest supply of all the necessa- 
ries of life for the general good? but, on the contrary, How 
shall we contrive to get the largest possible per eentage 
income with the least possible production on our part? This 
state of society is directly at variance with such a one as a 
just monetary system would naturally induce. It is as much 
opposed to the natural rights of society as falsehood is to 
truth; and no continuance of competition in production or 
distribution, under the present monetary laws, will be auy 
more likely to remedy the evils of this debasing system, 
than competition in falsehood would be likely to produce 
and sustain truth. We must begin improvement by doing 
away the great gain by unrighteous per eentage interest on 
money; and then the wealth will naturally be widely dis- 
tributed among those who do the most for the good of man, 
instead of being gathered in by a few, who thus become the 
great oppressors of the human family." 


It is urged by many who are favorable to the use of full 
legal tender paper money that a bond is not essential in 
regulating the circulation of money ; neither can it regulate 
the rates of interest. The power to make and regulate 
money has long been recognized as a governmental func- 
tion, and money issued by the government should be clothed 
with the same authority, without regard to the material 
Used. The reason of this is obvious. Money to be a pub- 
lic medium of exchange must possess legal representative 
value, and that can be derived only from the sovereign or 
law-making power of a nation. 

For centuries, many nations have used either gold or sil- 
ver, or both, out of which they made their money ; and in 
this enlightened age many are led to believe that gold and 
silver are of themselves money, and that they have been 
made the standard of value the world ever. But such is 
not the fact, either theoretically or practically. 

Legislation must first determine the weight of the coin 
that represents the unit or measurement of value which en- 
ters into the money account of a nation, and even after it is 
coined, it is not money, neither will it perform the functions 
of money until legislation declares such coin shall be a le- 


gal tender. This alone gives it legal authority to pay 
taxes and duties, and liquidate debts, and which in turn 
makes it acceptable as money. 

Therefore if the government will properly issue the pub- 
lic treasury note, or any other paper token, and declare 
their willingness to receive it for taxes and all public dues 
to the government to the amount inscribed on its face, the 
same to be made a full legal tender for all private obliga- 
tions. When the public note is thus issued it possesses all 
the legal attributes and the same legal authority to perform 
the functions of money as if the material of which the to- 
kens are made, possessed intrinsic or commercial value. 

As we have shown, it is not the material, nor the gov- 
ernment stamp, which constitutes money, but the act of 
Congress declaring its lawful acceptance, which gives it le- 
gal ability to liquidate public and private obligations. This 
alone gives gold, silver and paper legal public authority 
to perform the functions of money. The demonetizing 
and remonetizing of silver is a proof of the above argu- 

Besides, paper money has many advantages over metalic 

1st. By reason of. the pledges inscribed on its face it 
represents the property, products and industry of the entire 
country to the amount or value so inscribed. 

2d. It is more valuable and safe, because every individ- 
ual and all the property and products in the nation, inclu- 
ding gold and silver, are held responsible for its security, 
for all the power and authority; given it by law to perform 
the functions of money. 

3d. It is light and convenient to handle and transport, 
more staple, and consequently less liable to fluctuate, and 
more difficult to counterfeit than metalic money. 


4th. The material of which it is made is not costly. 
This will enable the government to furnish the people with 
a circulating medium at a small expense, in sufficient quan- 
tity that the people may be set to work and produce actual 
wealth, (for money should never be considered actual 
wealth, only the representative of wealth). It will furnish 
a proper medium of exchange, which is the only instrument 
that will enable" the government to keep the people at work 
and make them prosperous. 

5th. It is unlike gold and silver money, which is limited 
in quantity. Neither the government nor the people can 
furnish a sufficient amount of metalic money to effect an 
exchange of commodities advantageously; and if there 
could be a sufficient amount obtained, it would require the 
labor of thousands annually. This would be an actual loss 
to the government and humanity, and as uselessly appropria- 
ted as the building of pyramids or walling of cities in old- 
en times. 

The idea of value is something that exists in the minds of 
the people independent of coins. The unit of value, the be- 
ginning point, when once established by custom and educa- 
tion, is used abstractly ; and when once fixed in the minds 
of the people, it passes into the money of account and is ca- 
pable of measuring all values without the aid of a material 
that possesses intrinsic value. 

Our experience in the use of the greenback for the last 
fifteen years, although only a partial legal tender has given 
the best kind of evidence that if we adopt the full legal 
tender absolute paper money system, it will furnish us with 
the best civilised money ever introduced into any nation 
on earth. 

Money may be issued under the legal tender system, and 
be made interchangeable with bonds bearing interest, and 


yet be absolute money, because the bonds do not enter into 
the issuing of money ; and the arguments favoring the use 
of the inter-convertible bond are that it will in some way 
regulate the circulation and interest. But after a more ma- 
ture thought my opinion is, that the greatest effect the bonds 
are likely to have over the circulation is contraction ; and 
what makes it more unfavorable, money will most likely be 
retired into bonds when property is falling, and that is the 
time when money should be the most plenty. And further- 
more, by the use of the inter-convertible bond, we offer a 
premium as an inducement to capitalists to contract the 
currency of the country. We must conclude that the high- 
est crime that can be committed upon the people of any na- 
tion (except murder) is the contraction of their currency ; 
and whether done by public or private authority, the offend- 
ers should be punished by the severest penalty of the law. 
Furthermore, there never has been a period in the history 
of this nation that demanded a more urgent necessity for 
the government to provide financial assistance than at the 
present, whereby the millions of idle people can be put 
to work and produce actual wealth, and stop the down- 
ward tendency and evils which idleness is sure to bring 
to any people, viz : poverty, destitution, ignorance, crime 
and misery; for all practical people agree that a civil- 
ized nation cannot prosper and develop diversified in- 
dustries unless tjie government see to it that her people 
are properly provided with an adequate amount of money. 
The liberal financial minds of this nation are of the opinion 
that our government is not providing anything like a suffi- 
cient amount to sustain the government and successfully 
conduct our various branches of industry, so numerously 
represented, and make us a prosperous nation ; and further- 
more, nothing short of an increase of our money will secure 


to all branches of industry, and in fact all classes of people, 
, good and remunerative wages, which they must have before 
prosperity can ever return to our nation. 

As to the exact amount of money it will require to stimu- 
late the greatest prosperity can only be determined by actu- 
al experience. We are confident that when a people are 
rich and prosperous it will require more money to conduct 
their business on a cash basis than it will when they 
are poor. But it is much better that money should be too 
plenty than too scarce, for when money is plenty everything 
else is plenty. Furthermore, when money is plenty the peo- 
ple can be kept at work, and all classes of industry will get 
good wages. This enables them to supply themselves and 
families bountifully, and in turn equally benefits the profes- 
sional class. It not only doubles their business, but people 
are able to pay when they secure the services of the profes- 
sions. It will be equally beneficial to the business interests 
of the country. Therefore I do not favor fixing any 
definite limit or amount per capita any more than for us 
to limit the extent of individual wealth. But the amount 
of money should be kept in proportion to our population, 
wealth and prosperity. Our experience has established the 
fact that our wealth and prosperity are better securities and 
regulators for money than a bonded debt. 



As to tie Character an J Worth of " Tie Money Question." 

From Hon. Wendell. Phillips. 

Boston, August 1, 1876. 
Dear Sir : — I have just finished a more careful reading 
of your " Money Question," and cannot resist the impulse to 
\hank you again for the great service you have done the 
public. I am struck with the completeness of the informa- 
tion furnished. I miss no fact, date or argument, and con- 
gratulate you most heartily on your marked success in achiev- 
ing what, from your preface, I judge was your purpose — 
though you there undervalue your own work. One rises 
from its perusal profoundly impressed with the vital impor- 
tance of the subject, and well furnished with the means to 
advocate the true method of safety and prosperity. 

Yours Respectfully, Wendell Phillips. 

From the Cincinnati Enquibeb. 

The Money Question: By William A. Berkey, Grand 
Bapids, Michigan. 

This work, which has just been published, is one of a 
much more comprehensive and profound character than its 
title would, perhaps, indicate, and merits more than a pass- 
ing notice. * * But it is in the analysis of the devices 
of the credit system, or substitutes for money possessing an 
intrinsic value, that the author renders the most valuable 
contributions to the literature of the day upon the engross- 
ing subject of money. * * The doctrine that the public 
note, like other devices of the credit system, is virtually 
based on commodities in the process of exchange is carried 
out to its logical results in every direction, and effectually 
disposes of such questions as, how much money we should 
have, how it should be put into circulation, etc. Although 
no pretense is made in regard to style, the work is compact 
in its character, and is written in remarkably pure English. 
Mr. Berkey has undoubtedly rendered the cause of honest 
money a great service, and inflicted a blow upon the Money 
Power that will be keenly felt. 


From "Farm and Factory," Lacrosse, Wis. 

" The Money Question " is the title of a book of nearly 
400 pages, written by William A. Berkey, of Grand Rapids, 
Michigan, which should be in the hands of every man in 
the country. This book, more than any other extant, strips 
the money question of all mystery, and explains the relation 
of money to societary organization, in language that is easily 
comprehended. In short, this glorious book opens a new 
channel of thought to the working man. After reading 
and pondering its pages he feels himself a stronger and 
better man. The broad light of day begins to dawn upon 
his heretofore clouded mind. He realizes for the first time 
in his life that God did not create him a slave to money, 
but on the contrary designed that money should be his 
slave, and that his past ignorance of a question which is of 
such vital importance to him is all that has made it possible 
for money to have held him in bondage so long. We shall 
have occasion to quote frequently from this invaluable work 
in the future. 

Mr. J. W. Horner, of Parkersburg, Pa., says : — " I find 
it a very valuable work, and one that should be read and 
studied by every lover of his country. I consider the mon 
ey question paramount to all others, and that the ' money 
aristocracy' of the present day is fraught with more evil to 
the country than ever the ' slave aristocracy' was, and should 
be watched closer than the money gamblers. I feel a pro- 
found interest in the circulation of your book." 

Messrs. Todd, Pollock & Granger, Wholesale Furni- 
ture Manufacturers of Burlington, Iowa, write : * * * 
"We have read your able work through carefully, and con- 
sider it one of the best works on the money question ever 
published. It ought to be put into the hands of every voter 
for careful consideration." 

Mr. A. M. Comstock, of San Francisco, the author of 
"American Finance," writes: — "Your work is the most 
complete presentation of the subject in print. If it could 
be generally read it would inaugurate a "new dispensation 
in finance.' " 

Wood F. Townsend, Esq., attorney at law, Danville, 111., 
says : — "I have read your book. It is grand, and it is do- 
ing great good. I hope the State Central Committee will 
have it circulated largely." 


From Pomeboy's Democrat. 

The Money Question : By W. A. Berkey, Grand Rapids, 
Michigan. 400 pages. Price by mail, $1.00. 

There is more real useful information concerning money 
in this book than in any we ever before saw. Its chapters 
tell of the wealth and resources of the United States, and 
why our people do not enjoy general prosperity ; money and 
its functions ; banks and banking ; banks of the old world ; 
paper money and the banks of the United States, with a his- 
tory of them from the first ; history of paper money ; the 
national banking system, etc., etc. We wish that a copy of 
this really exhaustive and valuable book was in the home of 
every voter in the country. It is full of facts, figures, data, 
information and proof that legal tender paper money is 
equally valuable for all business purposes with gold or sUver 
coin, duly stamped and issued as money. It gives the his- 
tory of money, of banks, of panics, of fluctuations in mar- 
ket, and tells in a plain, earnest way, how the evils of panics 
and those national depressions made to enrich the few at 
the expense of the many, may be avoided. Mr. Berkey has 
done in this book as much for industry and the good of the 
people as Grant ever did for the army. He has written, as 
it seems, under inspiration, and has produced a book so full 
of sense, so forcible in its illustrations, so correct in its 
statements and conclusions, that it should be a text book in 
the home and memory of every man who wishes for success 
in life. By all means send for it. Read it and then you 
will see why times are hard, and what the remedy to apply 
to prevent hard times in the future. 

From General Benjamin F. Butler. 

Lowell, Mass., August 9, 1876. 
Dear Sir : — I am very much obliged to you for a copy 
of your excellent book upon the money question. It brings 
together an array of facts and statistics which should be en- 
tirely convincing to every thinking man of the nation, of 
the inexpediency, nay, cruelty of forced resumption of spe- 
cie payments. Again thanking you for the copy, which I 
shall keep beside me as a hand-book of dates and facts, 
I am, truly yours, Benj, F. Butler 




3 ZU*W Ultf D*W Off